401k Contributions...

Not sure what is meant by 'without penalty'. If you convert an traditional IRA to a Roth, you'll pay taxes on the taxable amount but would be exempt from taxes on any growth from the time you convert.

In 2010, you will be able to convert an IRA to a Roth no matter what your taxable income is. But those taking advantage of this would owe tax. However, you will be allowed to average those taxes over a 2010 and 2011.

As for me and the 401k, I max out the contribution ($16k this year). Company kicks in another 3 grand or so. I also max out the allowable IRA contribution.

 

As of today one can't rollover a 401k into a Roth, correct? One has to rollover the 401k into a traditional IRA.

 

correct. you don't rollover into a roth...you Convert into a Roth. So technically, you could roll your 401k into a traditional IRA, then convert it to a Roth. Of course, you would owe tax on the entire amount in the year you convert.

 

Yep - but then no more tax. In 2008, it's basically the same as Roth contributions any year - except no penalty for being able to write off the IRA interest in previous years. Just pay the gains taxes, then put in in the Roth and no more taxes ever.

 

I have a pretty good deal at work. We have profit sharing, and they have never contributed less than 9%, with a high being 13.5% one year. It all goes into Fifth Third Bank, so they can't Enron me later.

I'll start my own side investing after I buy a house.

 

Unfortunately, if you make too much, the scenario where you're most likely to want a ROTH as you want to pay the taxes today and avoid them at retirement when you're likely to have other income sources, you aren't allowed to contribute to a ROTH. Sucks hard. And there are limits for contributing to a traditional IRA that block the tax-deductibility of that one (which is the whole reason to use it)... In short, if you pull in over $160k, you better max out that 401(k)...

Roth IRA:
For single filers - up to $95,000 for 2006 and $99,000 for 2007 ($95,000-$110,000 in 2006 and $99,000-$114,000 in 2007 for a partial contribution)
For joint filers - up to $150,000 for 2006 and $156,000 for 2007 ($150,000-$160,000 in 2006 and $156,000-$166,000 in 2007 for a partial contribution).

Traditional IRA tax deductibility:
For a Traditional IRA, full deductibility of a contribution for 2006 is available to active participants whose 2006 Adjusted Gross Income (AGI) is $75,000 or less (joint) and $50,000 or less (single); partial deductibility for AGI up to $85,000 (joint) and $60,000 (single). For contributions in tax year 2007, the full deductibility AGI limits are $83,000 or less (joint) and $52,000 or less (single); partial deductibility for AGI up to $103,000 (joint) and $62,000 (single). In addition, full deductibility of a contribution is available for working or nonworking spouses who are not covered by an employer-sponsored plan whose AGI is less than $150,000 in 2006 and $156,000 in 2007; partial deductibility for AGI up to $160,000 in 2006 and $166,000 in 2007

 

Oh, and I'm at 10%, matched 3% by my company putting a total of 13% of my earnings from my employer into the 401(k).
ESOP (ESPP) plan also gets 15% at a 15% discount.
Extra cash is periodically dumped into an investment account.

No debt is maintained other than the house.

 

That's true. But at least for the next few years, you can get around that...to a degree. In 2010, you will allowed to convert a Traditional IRA to a Roth no matter how much you make. So, you make Non-deductible Traditional IRA contributions each year and in 2010, you convert to a Roth. You pay tax on any gains you have made between now and then, nothing more. There's no way of knowing if they will do anything similar after 2010. But at least you can sock away 12 grand or so...I wouldn't ignore this opportunity if you are in those AGI brackets that prevent ROTH contributions.

 

so you trust the Govt that much? Hell, 20-30 years from now who knows what they'll change....

 

I'm in a similar situation myself. I had a 401K at my former job. The profit sharing contribution made by my employer at my new job is more than my contribution plus my employer matching contribution into my 401K ever was. I have put the funds I used to invest in 401K into a Roth IRA, so even though I'll have to pay taxes on the profit sharing when it starts distributing, I'll get some relief from taxes via the ROTH.