Supplementing pension ideas

[Schneed10]

Originally Posted by 724Skinsfan

Does anybody have some advice as to finding the right balance of supplementing a pension with other forms of investing and simply using your income for other things in your everyday life. I used to contribute the max to my 401k with my previous job. The employer matched up to 8%. No that I work in the public sector with a pension, I'm struggling with justifying putting the money into the 401k (Fidelity). Here's what I'm thinking:

1)My first choice is to do what I should have done earlier which is to roll it over into a Roth IRA and keep contributing.
2)Another option is to enroll in a 403b plan, which allows up to 15k/year and also a "catch-up" period if I'm lagging behind.
3)Yet another option I have is to put more money into some stock that I own to really boost those shares up. Currently I just automatically roll the dividend check into purchasing more stock certificates but I could set up a monthly payment plan to buy more.

I work for the state/county government so my income isn't particularly enviable but the pension/benefits is pretty nice perk. I can't put my money everywhere and also I want to be able to enjoy myself at my current age.

Any suggestions before I set up a meeting with a financial planner would be most welcome.

As a financial planner would no doubt advise you, your primary consideration here would be structuring your investments in a manner that will take maximum advantage of tax savings.

Rolling your 401K account, which I presume you contributed to on a pre-tax basis, into a Roth IRA would result in a large one-time tax penalty. This is a terrible idea, obviously.

There's really no advantage to rolling your 401K into a traditional (non-Roth) IRA either, unless you like the investment options at another institution better than Fidelity's. I however would find that nuts. I'm with Fidelity, and you couldn't pay me to move my money from them. They've got some tremendous fund managers.

403b's are identical to 401Ks in that you contribute money on a pre-tax basis, thereby reducing your tax liability. This make maximum use of your money today. You'd pay less in taxes, but would be taxed on your withdrawals when you retire. This is a good option if you're looking to maximize your cash flow in the here and now.

Roth IRAs are best for the long haul. You put money in on an after-tax basis, meaning you don't get any of the aforementioned tax benefits in the present. This puts a bit more strain on your budget in the present. But upon retirement, you make withdrawals on a tax-free basis. Over the long run, this is the most efficient use of your money. But putting $3000 per year into a Roth would leave you with less cash flow than putting $3000 per year into a 403b.

The stock, assuming it's not included as part of your existing 401K or any other IRAs, is a taxable investment. You will be taxed on any dividends and capital gains. If you plan on using this money for retirement, steer clear of this option. Make your investments in either the Roth IRA or the 403b.

In short:
- Do not roll over your 401K, there's no benefit to doing so.

- If you are saving expressly for retirement, use the Roth IRA or 403b vehicles. Choose between them based on your cash flow needs today. Pick an amount to save per year, and decide if you can afford to do it on an after-tax basis. If you can hack it, go with the Roth, it's better. Unless the 403b contains an employer match, then use that under all circumstances.

- Only invest in taxable stocks if you have excess money after socking away your retirement money. If you plan on saving for your kid's college education, do that in a 529 before you start saving money in taxable stock accounts.

Hope this was helpful.