roth ira versus 401k (w/out matching $)

[Guest flipwood]

not being very up to snuff on tax info i was wondering if anyone could help me with the following:

Currently my employer is offering everyone in the office the option of contributing their money to a 401k plan. The plan does not offer any type of matching $'s just your money, although they do contribute a lump sum irregardless of your contributions. It was my contention that everyone would be better off putting any contributions into a Roth which they would then have complete control over as well as probably better tax consequences. Was i right in assuming this?

[John G]

This is a tough question to give a general answer, there are lots of details that may be important. For example, it was not clear if your plan was based upon pretax or aftertax contributions.

The Roth is currently limited to 2K per person while you may be able to do more in the 401K. Roth can have nearly unlimited range of investment options while 401K is likely to offer fewer choices. 401k may be based upon company stock, which can be negative (too many eggs in the same basket: job+investments) or positive (such as if you work for Cisco or Intel with great stock performance) and there are exit options with the 401k company stock. If your married, you may want your spouse to participate which is not a 401k option. There are also some other issues like protection from creditors, loans, experience with investing of the employee, etc.

While many folks might be better off with a Roth, I don't think anyone can say that is universally true for every 401K. For some folks, using the company payroll deduction method with a 401k is simple and effective. While you can achieve the same result with a Roth and monthly direct deposits to a mutual fund, some employees may just like the simplicity.

"Everyone would be better off" is not the issue that should concern you. Do your own research and make your own conclusions.

Note, these message boards have an area for 401(k) issues, which might be useful to you.

[Guest Matt Tuttle]

Sorry to be overly simplistic but why don't you do both.

Matt Tuttle

http://www.wealthadvisors.bigstep.com