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IRAs, Roth IRAs, 401(k)s, (oh, my!)

Tips and tricks -

There's been quite a bit of discussion on the expenses that 401(k)s charge, most recently from John Bogle (founder of Vanguard, and considered to be the father of Indexing). If you find that the fund choices within your 401(k) have expenses much over 1%, it may pay to limit your deposits only to the amount needed to capture the matching, then move on to an IRA/ Roth IRA.

Since you do not know what the tax laws will be next year, let alone 20 years hence, it's a good idea to diversify amongst pre-tax and post tax accounts. The Wealth Accumulator may find himself in a higher tax bracket at retirement than while working. So a mix of post tax money, especially good use of the Roth IRA, should be considered.

At retirement, you will have to take RMDs (required minimum distributions) the year you turn 70-1/2. (You can start taking penalty free withdrawals at 59-1/2). Consider this. Given the RMDs increase over time, and your account is continuing to grow, so that a decade into retirement, you may wind up in a higher tax bracket. When you start to take those withdrawals, consider a Roth conversion to 'top off' your tax bracket. An example - a single person with taxable income of $25,000 (including his RMD) is in the 15% tax bracket. He will pay 15% right up to $31,850. By converting $6,850 this year to a Roth, he will pay tax on that money now at 15% and avoid paying tax on any further gains on that sum. Over time, this will help draw down the IRA while still paying just 15%. Keep in mind, any possible forced withdrawals that push his income over $31,850 will be taxed at 25%. This trick can potentially save quite a bit of money. Tax rate charts can be found at Fairmark.com for you to find the rates that apply to your situation.