Retirement. Where should I put my money?

If your company offers a 401k, it's a great place to put your pretax money with each paycheck. One reason is because the money is deducted pretax and is out of sight out of mind which is great for people who have trouble saving money. Unfortunately, what you also don't see are the management fees associated with your 401k plan. I looked at my husband's account the other day and noticed that in the last six months, they deducted at least $60 in maintenance fees from one of his funds. Also, the fund options I have to choose from are extremely diversified and has us investing in sectors like financials which I don't want to be in a 3000 mile radius of right now. The maintenance fees we've been charged for the privilege of losing 10% on our account in the last six months is equivalent to eight or nine trades using my own online account which I can have more control over. Needless to say, I've transferred a bulk of the 401k into bonds and a small amount into a heavier weighted energy fund and a tech fund.

So, what I have learned..........


ONLY invest up to the amount that the company will match. For my husband's company that means if we invest at least 6%, his company will match another 3%. I don't care if I can put up to $15,500 this year into the account because all I'd be doing is flushing money down a toilet each month.

What to do with the rest of the money? Sink it into a ROTH IRA. If both you and your spouse have your own accounts you can each invest up to $5000 per year at the current contribution for 2008. That way, you have control over what you want to invest in. You want to invest in McDonalds? Go for it! You want to own a few shares of Research in Motion because you think their new Blackberry is super cool? Do it! If you want to be a little more conservative, you could invest in a mutual fund that is sector specific. You aren't tied down to what funds the company offers. Plus, you get to keep all of the dividends and you only pay a fee if you make a trade! And the best part is that all of the money the ROTH makes is completely tax free when you start to withdraw on it later.

If you're lucky, your company might offer the ROTH 401k plan. This just started a couple of years ago. If you aren't sure, contact your Human Resources department and ask. It's the same principle as a traditional 401k but it is invested after taxes. You can invest in either one or put some in each up the $15,500 limit. Depending on how many deductions you have, you might actually be better off with the ROTH 401k. For us right now, because we have two mortgages and one rental property, we are able to claim a lot in deductions so the amount we'd save by investing in the pretax 401k isn't worth it to us. In 2010 ( assuming Obama doesn't become president and repeals the tax cuts like he claims he will do as soon as he gets into office ), you will be able to transfer a traditional 401k/IRA to a ROTH with no income limits. Currently if you make over 100k you aren't allowed to make the transfer. Also keep in mind you'll have to pay taxes on the money but if you make the transfer in the year 2010, then the IRS will allow you to spread the taxes over two years. ( Editorial comment: So help me.......... Obama better not become president! )