Question about 401K

[walk066]

I have my 401K invested in my companies stock. The stock has done really well in the past, however it has been on the decline recently. I have seen people talk about the Roth IRA lately and wondering if this is something to consider? Thanks.

[dhunter]

Originally Posted by walk066

I have my 401K invested in my companies stock. The stock has done really well in the past, however it has been on the decline recently. I have seen people talk about the Roth IRA lately and wondering if this is something to consider? Thanks.

Roth IRA is pretty sweet. Since you don't get taxed on growth. I'd look into it. At the very least, change your 401k setup. YOu should NEVER have your 401k based on a single company..whether it's the company you work for or Apple or Google. A single stock is too risky....can quickly go up or down. Invest in funds that have multiple stocks in it...or general ones like S&P 500. Less fluctuation.

[walk066]

Originally Posted by dhunter

Roth IRA is pretty sweet. Since you don't get taxed on growth. I'd look into it. At the very least, change your 401k setup. YOu should NEVER have your 401k based on a single company..whether it's the company you work for or Apple or Google. A single stock is too risky....can quickly go up or down. Invest in funds that have multiple stocks in it...or general ones like S&P 500. Less fluctuation.

I got a letter from the company that handles our 401K and said to diversify if I want to, so I might. Does the Roth IRA make good money? My companies stock is 61, but has been as high as 70 in the past half year.

[dhunter]

Originally Posted by walk066

Does the Roth IRA make good money? My companies stock is 61, but has been as high as 70 in the past half year.

i have to say this post made me cringe. 401k's are for retirement..not to make a quick buck. In a short stent, some funds will lose money but over a long period of time...it will make about 10%. in other words...just put money into it and dont worry about how it does in a short periiod of time. if you want to invest in your company's stock...you should...but not part of your 401k...JMHO

gl

[walk066]

Originally Posted by dhunter

i have to say this post made me cringe. 401k's are for retirement..not to make a quick buck. In a short stent, some funds will lose money but over a long period of time...it will make about 10%. in other words...just put money into it and dont worry about how it does in a short periiod of time. if you want to invest in your company's stock...you should...but not part of your 401k...JMHO

gl

Thanks. I'm not trying to make a quick buck or I'll get taxed to hell, but just want to make the most out of it.

[SecretStash]

roth ira isnt a certain stock or group....its a non taxable allowance of usually 4000$- 6000 max contribution per year set by fed government.




-stash




A Roth IRA is an individual retirement account (IRA) allowed under the tax law of the United States. Named for its chief legislative sponsor, U.S. Senator William V. Roth Jr. of Delaware, a Roth IRA differs in several significant ways from other IRAs.

Roth IRA
From Wikipedia, the free encyclopedia


[edit] Overview
Established in 1998 (Public Law 105-34), a Roth IRA can invest in securities, usually common stocks or mutual funds (although other investments, including derivatives, notes, certificates of deposit, and real estate are possible). As with all IRAs, there are specific eligibility and filing status requirements mandated by the Internal Revenue Service. A Roth IRA's main advantage is its tax structure. Contributions are made only from earned income that has already been taxed (and is not tax deductible), but withdrawals up to the total of contributions are federal income tax free, and withdrawals of earnings (anything above the total of contributions) are often free of federal income tax. Depending on with whom a Roth IRA is set up, it can be managed in creative ways, including investments in non-typical assets (Self-Directed IRA).

The total contributions to all IRAs are limited as seen below (this total may be split up between any number of Traditional and Roth IRAs. In the case of a married couple, each spouse may contribute the amount listed):

Year Age 49 and Below Age 50 and Above
1998–2001 $2,000 $2,000
2002–2004 $3,000 $3,500
2005 $4,000 $4,500
2006–2007 $4,000 $5,000
2008* $5,000 $6,000

*Starting in 2009, contribution limits will increase in $500 increments based on inflation.


[edit] Differences from a traditional IRA
In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible. An advantage of the Roth IRA over a traditional IRA is that there are fewer restrictions and requirements on withdrawals. With both types of IRA, transactions inside the account (including capital gains, dividends, and interest) incur no tax liability.


[edit] Advantages
At any time, the Roth IRA owner may withdraw up to the total of his or her contributions (in nominal dollars).
If there is money in the Roth IRA due to conversion from a Traditional IRA, the Roth IRA owner may withdraw up to the total of the converted amount, as long as the "seasoning" period has passed on the converted funds (currently, five years).
Earnings withdrawals become automatically qualified in the tax year the participant reaches age 59.5 or becomes disabled, so long as the account is "seasoned" (established for five or more years).
Up to $10,000 in earnings withdrawals are considered qualified if the money is used to acquire a principal residence. This house must be acquired by the Roth IRA owner, their spouse, or their lineal ancestors and descendants. The owner or qualified relative who receives the "first time homeowner" distribution must not have owned a home in the previous 24 months.
If a Roth IRA owner dies, and their spouse becomes the sole beneficiary of their Roth IRA while that spouse also owns a separate Roth IRA, the spouse is permitted to combine the two Roth IRAs into a single account without penalty. Additionally, qualified distributions are also available to other beneficiaries of Roth IRA owners. See IRS Pub 590 for complete details.
If the Roth IRA owner expects his or her tax bracket after retirement to be higher than before retirement, there is a tax advantage to making contributions to a Roth IRA over a traditional IRA or similar vehicle. There is no current tax deduction, but money going into the Roth IRA is taxed at the lower current rate, and will not be taxed at the higher future rate when it comes out of the Roth IRA. If a taxpayer is currently in the 15% tax bracket, then a $1,000 contribution to a traditional IRA would provide a $150 reduction in current-year tax liability. If that taxpayer were in the 30% tax bracket upon retirement, $1000 of traditional IRA distributions would incur $300 in taxes. Therefore, the person would pay twice as much for after retirement income as he received in tax benefits from the traditional IRA deduction (and since gains are compounded, this comparison is valid). Therefore, the Roth IRA offers a specific advantage where a person will retire in a higher tax bracket than that used during his or her pre-retirement years.
Perhaps the greatest advantage of the Roth IRA is its lack of forced distributions based on age. All other tax-deferred retirement plans, including the Roth IRA's cousin, the Roth 401(k),[1] require withdrawals to begin at age 70½ (more precisely, by April 1 of the calendar year after age 70½ is reached), and impose an annual minimum distribution once withdrawals begin at any age beyond 59½. The Roth IRA is completely free of these mandates.

[edit] Disadvantages
The main disadvantage of a Roth IRA (when compared to a traditional IRA) is that contributions are not tax-deductible. If one contributes $1000 to a traditional IRA while in a high tax bracket, one can often receive a tax deduction, substantially reducing the initial cost of contributing (or, potentially, allowing someone without much disposable income to shelter more income). This is not the case for the Roth IRA. It should be noted that the money in a traditional IRA is taxed once it is withdrawn at retirement. If one is not able to max out one's IRA contributions, and ends up in a lower income tax bracket at retirement, then one will wind up with less usable cash by choosing a Roth IRA over a Traditional IRA.
With a Roth IRA, there are heavy penalties for early withdrawals of earnings (withdrawals up to the total of contributions + conversions are tax-free). An unqualified withdrawal of earnings will result in federal income tax plus a ten-percent penalty on the amount. Fortunately there are many exceptions, such as buying a first home and paying qualified educational expenses.
There is also the risk that Congress over the next few decades may decide to tax earnings on Roth IRAs.
The perceived tax benefit may never be realized, i.e., one might not live to retirement or much beyond, in which case, the tax structure of a Roth only serves to reduce an estate that may not have been subject to tax. One must live until their Roth IRA contributions have been withdrawn and exhausted to fully realize the tax benefit. Whereas, with a traditional IRA, tax might never be collected at all, i.e., if one dies prior to retirement with an estate below the tax threshold, or goes into retirement with income below the tax threshold.

[edit] Eligibility: Income limits
Like many tools that offer tax advantages, Congress has limited who can contribute to a Roth IRA, based upon income. A taxpayer can only contribute the maximum amount listed at the top of the page if his or her Modified Adjusted Gross Income (MAGI) is below a certain level (the bottom of the range shown below). Otherwise, a phase-out of allowed contributions runs throughout the MAGI ranges shown below. Once MAGI hits the top of the range, no contribution is allowed at all. The ranges, for 2007, are:

Single filers: Up to $99,000 (to qualify for a full contribution); $99,000-$114,000 (to be eligible for a partial contribution)
Joint filers: Up to $156,000 (to qualify for a full contribution); $156,000-$166,000 (to be eligible for a partial contribution)
Married filing separately (if the couple lived together for any part of the year): $0 (to qualify for a full contribution); $0-$10,000 (to be eligible for a partial contribution).
The lower number represents the point at which the taxpayer is no longer allowed to contribute the maximum yearly contribution. The upper number is the point as of which the taxpayer is no longer allowed to contribute at all. Note that people who are married and living together, but who file separately, are only allowed to contribute a relatively small amount.

However, once a Roth IRA is established, the balance in the account remains tax-sheltered, even if the taxpayer's income rises above the threshold. (The thresholds are just for annual eligibility to contribute, not for eligibility to maintain an account.)

[Goods]

What he said.

By all means, diversify your 401k if you have control over it. Just ask the unlucky bastards at Enron.

If your company matches your 401k, your best bet is to put in the maximum allowable amount and have them match. Don't touch it or you'll get hit with a 10% penalty come tax time.

If they don't match, then a Roth IRA is probably for you. Might want to buy into a good mutual fund with the money. I like American Funds personally. Talk to a financial planner or do some research.

[Jimmy K]

I tend to be somewhat active in my 401k, especially with my company stock. I have channel traded Wachovia in my portfolio and moved money from fund to fund at certain times. I would definitely move a bunch of money into other areas other than your company stock and if your income allows you to take advantage of a roth than do so, use an online broker for the least expensive route.

[PigSkinTerror13]

if you're getting towards retirement, move into Big Cap and bonds

also, check out the Fidelity 2035 funds... it targets your retirements and adjusts as you age

[walk066]

Originally Posted by Goods

What he said.

By all means, diversify your 401k if you have control over it. Just ask the unlucky bastards at Enron.

If your company matches your 401k, your best bet is to put in the maximum allowable amount and have them match. Don't touch it or you'll get hit with a 10% penalty come tax time.

If they don't match, then a Roth IRA is probably for you. Might want to buy into a good mutual fund with the money. I like American Funds personally. Talk to a financial planner or do some research.

My company matches up to 5%

[ghoopin]

Another thing to condsider here if you are able to move funds around in your 401k as most companies let you do now, try to do a little research on your company as far as 52 week high and low, any big news they might be putting out about earnings when you know the quarter is nearing an end, etc. NOW THE BIG THING TO REMEMBER..... I work for a company that allows me to by their stock at a discounted rate and many companies do. If you know your company is doing well and they are about to report high earnings, move some money over to their stock for a few days before they report and cash in on the increased stock price after the announcement, then move the money back out and take the profits. You can then diversify again until you see another opportunity to cash in on discounted stock with your company in you 401k. If you don't understand this completely, ask someone you work with. I'm sure someone you work with practices this.