My base salary is less than $95K. But if you add in co stocks, co car, bonus…that kicks me over $100K. How do I determine this so called “max income”? Just base salary or does it include all the other perks?

From my readings, if i am over $100K/yr I can contribute less than the max ($5K)…but how do I know how much that is? Vanguard said they cannot give tax advice, so they are not helping me. I didn’t think this was a tax question, I just want to be in compliance so my accountant and Uncle Sam don’t come after me.

Any insight is appreciated. Thanks!!

You omitted one important remark on the topic of 401(k) mechanics. I did some calculations, and you can check if they’re correct on this google docs document:

http://spreadsheets.google.com/pub?key=pZxgx4HEDOBSJjntfiuGvZA

You list pre-tax money going to 401k as a benefit because of the compound interest on otherwise-taxable amounts. However, it’s not a benefit in itself:

Here’s the math:

scenario 1 (401(k) style): we put pre-tax $X dollars into an investment account every month, and after 30 years, we have $Y amount on our account, but when we withdraw it, the tax of Z% is applied, so we have (100-Z)% of $Y.

scenario 2 (regular investment): we put post-tax (100-Z)% * $X into the investsment each month, and after 30 years, since it was already taxable, we end up with – lo and behold! – (100-Z)% of $Y.

It’s the same. So it actually will most likely be a disadvantage – because taxes may rise (you said it somewhere later in the post or comments), or because we are “stuck” with all this money until we’re 59.5+.

The actual benefits are those you list later (matching contrib. from employer, no tax if buying a house etc.) – and those are the real reasons one should think about it.

Still, I’m not saying 401(k) sucks – just that its value isn’t coming from the compound interest from the untaxed money on each contribution.

We have tried and tried to get this money out, and into one of our other retirement accounts, with no luck, even though I have been told it is possible. If my husband cashes out the 401 (k) and immediately puts it into a Roth IRA, can he avoid the early withdrawal penalty on the 401 (k)? Or if he were to put it into a Fidelity regular IRA account that he already has?

I hope you can shed some light on this. I am trying to minimize the accounts we have, and have the money where we want it, not in his ex-wife’s employer account. That just doesn’t sit well with either one of one. We’d like to make more of a financial break from her.

Camilla

I just found out that my company contributes a flat 5%, regardless of my contribution, you just have to have an opened account. Now I’m going to do that and start contributing myself.

Where would I be without you. (poor and destitute?)