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Baby Ape's 401K
Old 12-19-2004, 12:34 PM   #1
 
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Baby Ape's 401K

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Re: Baby Ape's 401K
Old 12-19-2004, 03:09 PM   #2
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Re: Baby Ape's 401K

If you decide to contribute after tax money to your
401k, it would be wise to put the money in separate
funds if possible. I believe you can withdraw the
amount contributed with no tax but the gains would
be taxable.

Cheers,

Charlie
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Re: Baby Ape's 401K
Old 12-19-2004, 05:11 PM   #3
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Re: Baby Ape's 401K

Don't forget to fund your Roth IRA first. No need to pay any more taxes than you need to.
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Re: Baby Ape's 401K
Old 12-19-2004, 08:35 PM   #4
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Re: Baby Ape's 401K

I contributed some after tax funds to a 401k a few years ago. When I left that company, I rolled the entire 401K into an IRA which was all lumped together. There was no separation of pre-tax and post-tax contributions. I wouldn't do it again because of that unless I had funded my Roth IRA first.
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Re: Baby Ape's 401K
Old 12-20-2004, 09:04 AM   #5
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Re: Baby Ape's 401K

Quote:
I contributed some after tax funds to a 401k a few years ago. When I left that company, I rolled the entire 401K into an IRA which was all lumped together. There was no separation of pre-tax and post-tax contributions. I wouldn't do it again because of that unless I had funded my Roth IRA first.
When I rolled my 401k to and IRA, the pre and post tax contributions were identified. I split the amounts, pre tax dollars to the IRA and post tax dollars to an after tax account. There were no taxes due as a result of doing this. The main reason to do this is to avoid the nightmare of tracking it all for the life of the IRA. The simplicity of taxes may not be a factor for everyone, but it is for me. I gave up some deferal of taxes on future earnings of the after tax funds, but that has it's positive aspects as well. Capital gains tax breaks can outweight the IRA benefits in some cases.

IIRC, the 401k custodian is REQUIRED to provide you with after tax and pre tax breakdowns.

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Re: Baby Ape's 401K
Old 12-20-2004, 10:24 AM   #6
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Re: Baby Ape's 401K

That requires a crystal ball for a perfect answer. However, given todays capital gains rates, you can compare todays capital gain rate for you vs. your normal income rate in retirement, and see which would be better from a tax viewpoint. Sometimes the capital gain tax now is better than the full tax rate later, but you have to examine that tradeoff for your circumstances.

Intangibles or other considerations to think about:

Do you/your family treat the 401k as more sancrosanct than aftertax savings?

I believe the 401k has some legal bankrupcy/lawsuit protection (anyone know for sure?).

In my early retirement, I am glad to have a mix of pre tax and after tax savings. I can vary the draw on each to optimize taxes (not minimize, but to use up the 15% bracket).
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Re: Baby Ape's 401K
Old 12-20-2004, 10:27 AM   #7
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Re: Baby Ape's 401K

Yes, it is worth investing post-tax dollars in your 401k
if you are not eligible for a ROTH. The money will grow
tax deferred. You can always withdraw the amount
you invested, with no tax penalty, at the time you
do a roll-over IRA. Just make sure your company
keeps track of your post-tax contributions. That is
why I suggested that you use different funds for the
post-tax investment ..... just belt and suspenders.

OTOH, if you invest in a tax efficient index fund like
Vanguard's Total Stock Market, you will get almost
all the tax deferral benefit with less potential hassle.

Cheers,

Charlie
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Re: Baby Ape's 401K
Old 12-20-2004, 11:06 AM   #8
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Re: Baby Ape's 401K

Quote:

I believe the 401k has some legal bankrupcy/lawsuit protection (anyone know for sure?).
A 401(k) plan is protected under ERISA from claims of creditors, whether or not you are in bankruptcy, except for claims of the federal government for back taxes, claims arising out divorce property divisions, and claims for child support.

Martha
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Baby Ape's 401K
Old 12-20-2004, 12:52 PM   #9
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Baby Ape's 401K

Remember to do a tax analysis of this. *Do you want all you money in a 401k you can't touch until you are 59 1/2? *Do you want your money invested in an account you have to pay ordinary income tax on? Might capital gains tax on a taxable account be better? It might be beneficial to have money outside of an IRA or 401k. Also check on the fees. Many 401ks have substantial fees.
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