question, a little confused

Joe, have you any idea what your 401(k) is invested in? E.g. stock, mutual funds? Also, how much of what you put into your 401(k) is matched by your employer? Do you have any credit card, car, or mortgage debt? If so, what are their interest rates and lengths?

I suggest you start lurking here to learn about where else you can store some of that $32k so as to best benefit you. Like a Roth IRA, for one.

Then maybe we can talk about something known as "asset allocation."

In general, investments that take more risk have more potential return. If you play it safe, such as i the savings account, you get very little reward. What you need to do is find a balance that you can life with. You cannot be too safe, since inflation will eat your gains, and you cannot be too risky, your may lose it all and have to eat dog food when you retire.

-john-

"Todd H." wrote

Investing in a 401(k) that has high expenses and is not matched is a huge mistake. Because of the low tax rates on dividends and capital gains right now, a taxable account will often be preferable.

The federal 2006 limit for 401(k) contributions is $15k, BTW, with a catchup provision for those over 49 of an additional $5k. For 2007, this rises to $15.5k, though catchup amount stays the same.

I agree that investing in accounts with high expenses can be a losing proposition, but to ignore the tax free contribution aspect just because an entire 401k contribution isn't matched by a company is foolish, IMO.

Best Regards,

-- Todd H.

"Todd H." wrote

Todd, the numbers on which you need to particularly focus are paying 5% to 15% on dividends and capital gains in a regular, taxable account now vs. paying potentially a lot more in taxes on all the 401(k) withdrawals, since they are taxed as income, and so at a much higher rate. Are you even aware of this difference? Run the numbers. They are why the most popular wisdom is (1) contribute up to matching in a

"tax free" DOES NOT EQUAL "tax deferred" and, believe it or not, there are legitimate situations where simply following your advice is, in fact, quite foolish.