Roth for Me?

[Guest Stephen L]

I am a public worker with access to deferred comp., but I have chosen not to participate in it because I don't like the limited choices for investment. Because I have this option I believe I don't qualify for a traditional IRA (at least I can't deduct the contributions). Does this make a Roth IRA a no-brainer for me? Also, is it too late for the 1998 tax year, or do I have until the 15th?

[Guest Lyric]

I can't speak to your eligibility to deduct contributions to a traditional IRA if you opt not to participate in your deferred comp. You certainly could not deduct contributions to BOTH an employment plan and a traditional IRA.

You need to get proper advice on the consequences of not participating in your official plan. It seems to me that while you may not like the investments they are offering, you would be better off investing in that tax-sheltered plan than going it alone in a taxable account (eg non-deductible IRA), or not investing at all. And if you opted for a traditional IRA, that might limit the amount you could put aside each year relative to what you can put into your employer's plan. You should speak to the plan administrator or an accountant.

You can, however, contribute to a Roth either way. There are no deductions, so the question of your deferred comp doesn't arise. You can still contribute up to $2,000 for 1998 before April 15.

Otherwise, you can contribute to both a traditional and a Roth IRA, provided that the combined contributions do not exceed $2,000 a year.

The conventional wisdom is to contribute the maximum to any plan offered by your employer (tax-sheltered), especially if the employer matches any contributions made by you, which is a bonus. Then if you have funds left over, put them in a Roth (up to $2,000 a year).

[John G]

Tell us what you don't like about your 403b/401k or other deferred comp choices and you will get some useful feedback. For example, do you have any of the following: an index fund, blue chip, growth, bond, etc set of choices. Are you getting any kind of match on your contributions?

[This message has been edited by John G (edited 03-29-99).]

[Guest Stephen L]

Thanks, for the help. While I don't have all the specifics about the plans in front of me, I can tell you it is NOT a 401K (that I would jump at). The plans used to be all annuity plans, but I believe that has changed somewhat. Here's the deal. If I join one of the plans when I terminate my position (I only plan to be there for 2 more years) I will have 2 choices: 1, leave the money alone; 2, withdraw it and reinvest it (paying all deferred tax, but no penalty). My choices are plans by Aetna, Travelers, Etc (limited to what they feel like offering). While some of the plans look OK now I don't like being stuck with the one I choose. I am 32 and retirement is a long what off - who knows what Traveler's will be like in 20 years. I want to be able to move it if the need arises, and it doesn't appear I have that option.

[John G]

This sounds something like the options my wife got for a 403B as a teacher... all annuities except one option with Fidelity (which the school district wants to drop). You said that if you terminate employment you could withdraw these assets, pay taxes and reinvest? You should also have an option to either transfer the assets to another retirement account or keep it with them as an independent person retirement account maintaining the shelter. Talk to the firm that would hold the annuity, ask about the options under your scenario. If the answer still stinks, you have a pretty compelling reason to find a better employer. Before you say yes to the next job, ask about their deferred comp, 401K, thrift savings, ESOP etc. These plans can easily amount to a hidden 20% of your compensation in the long term. The private sector is often more generous and flexible. If that doesn't help, run for president for one term, give a speech in Asia and take pre-IPO stock in leu of your $80k speaker fee. George Bush has $14 million more from that recent arrangement... which makes the fees Reagan collects pale by comparison. What a country.

[This message has been edited by John G (edited 03-30-99).]

[Guest Stephen L]

Thanks John,

Maybe I should call on of the reps. again, but they are the ones who told me I couldn't roll it into another tax deffered account on termination.

[Kathy]

Is it possible that we're talking about a 457 plan? That would not be eligible for rollover into an IRA but I also don't think (but am not sure) that you would be considered an active participant in an employer sponsored retirement plan if it is a 457 plan and you have chosen not to benefit from it.

[Guest Stephen L]

I'm not sure, but my W2 has pension plan checked, I thought that this was all that was required to make an IRA non deductible? Also, co-workers who have their taxes prepared by accountants say they can't deduct an IRA, even though they chose not to participate.

[Guest Stephen L]

I just realized where I have confused some of you. I have a non-contributory retirement plan that I have to join. The benefits are meager and there are no options. In addition to this I can join the deferred compensation plan.

[John G]

Unless your defered comp plan is decent, it may be time to look for a different employer. There is a huge long term difference between being in a modern private sector firm with various retirement/410k/thrift plans and the governmental arena. At the extreme end, you have clerks at Microsoft that after a decade can have accumulated massive assets. In the governmental arena, you are often stuck with limited choices.... some government flaks think low performing annuities are "exciting". Its sad, because some many important jobs (teachers, fire/rescue, police, etc.) you better love 'cause you don't get $$.