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Feb 11 2013 12:00AM

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I am 62 years old and contribute to a 401(k). Would it be wise to withdraw from the 401(k) and invest that money in a Roth IRA? I have watched my 401(k) loose so much money in this economy it scares me.


This is a complex question. The baseline answer is that it will depend on many factors. First, investing in a Roth IRA can easily have as many investing pros and cons as in a 401(k), so I wouldn’t focus first on what vehicle you are using or whether or not the investment is making money this month or this year. Instead I would focus on the big picture: Should you be contributing to a pre-tax 401(k) or an after tax Roth IRA? After you answer that question, then focus on the investment  side. If you are not comfortable with the volatility of your present 401(k) investments, you should be able to re-allocate such an investment pool within the options of that plan, and thus should not be forced to withdraw and pay taxes now, to have different investment options.

Both 401(k) and Roth IRAs are valuable tools for accumulating wealth and in many cases can be used simultaneously to build up assets for retirement. While the 401(k) is typically comprised of before tax contributions, and the ROTH IRA are after tax contributions, both options should have sufficient investments available for you to find a strategy that you’re comfortable with. Unless something in your situation is truly unique, simply withdrawing from your 401(k) to go into a Roth IRA solely so that you can have different investment options, would generally not be considered sound planning.


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