http://www.publicradio.org/columns/marketplace/gettingpersonal/ en Copyright 2009 Thu, 09 Jul 2009 15:09:01 -0800 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss Question: My husband and I can't decide whether or not to buy our first house. We will likely be in any house we buy for at least five years -- there is some possibility we would move after that. We have $50,000 available for down payment, but we also have a 13-year-old and a 10-year-old and are worried about college. We only want to buy a house if it is beneficial to us financially in the long run -- otherwise, we are happy renting. And we hate to say goodbye to that pot of cash that could buy our boys more choices for college (though we also worry about inflation destroying it, and losing this opportunity to buy in a neighborhood we like but usually can't afford to buy in). Should we become homeowners, or not? Laura, Milwaukee, WI Answer: I really like the way you're asking the question. The answer comes from understanding the trade-offs you'll make to own, and whether it makes sense for you. Owning can make sense. Prices are attractive. The $8,000 first-time homebuyer tax credit is an added incentive if you quality. A home is a lifestyle, too. It's a place where you live with all the benefits that come decorating and landscaping it the way you want. That said, you want to ignore the two biggest lies in the real estate business. The first is to "buy as much home as you can." It's a recipe for financial trouble. The second is renting is "throwing your money away." That's wrong. Here are my principle guidelines to weighing the costs and benefits of homeownership: *Compare the cost of owning vs. renting. *Buy only if the deal is financially conservative *Keep the mortgage and financing simple--no piggy-backs, 80/20s, and the like *Smaller is both smart and socially sustainable Number crunching will help keep emotions in check. Let's say you calculate that the monthly cost of ownership, taking tax benefits into consideration, is higher than the monthly price of renting for a comparable property. If you buy a home, you're making a big bet that home prices will rise to justify the purchase. But you have a financial cushion if the cost of ownership is less than renting. There are a number of good online calculators, but I tend to gravitate toward the websites www.dinkytown.net and www.hsh.com. Time is critical. Ownership doesn't make sense unless you're confident that your time horizon is at least 5 years. You're in the ballpark from a time perspective. After you've gone through all this, I would then decide whether ownership is sensible for you. There's nothing wrong about deciding to rent and save. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/buy_or_rent.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/buy_or_rent.html Housing Savings Thu, 09 Jul 2009 15:09:01 -0800 Question: My husband and I got married recently and we're having a bit of a debate about what constitutes an emergency fund. I believe it is an account (money market, CD, savings) with 4-6 months of expenses stashed away. My husband feels that it doesn't have to be a particular account; in fact he would say that I could count my 401K and IRAs as emergency funds. I completely disagree as my retirement funds are for just that, retirement. In an extreme situation, I could tap into those, but it would have to be from dire need. We'd appreciate your wise counsel on the subject & enjoy listening to your show on Yellowstone Public Radio. Thank you, Rachelle, Bozeman, MT Answer: I don't want to get between you and your husband, but I'm going to have to take your perspective on "emergency" savings. It's your safe and secure money that you have quick and easy access to without paying a penalty. Emergency savings includes savings accounts, money market mutual funds, short-term certificates of deposit, Treasury bills and the like. Of course, there are differences between these products. You can get immediate access to a savings account attached to your checking account. If you own a 3-month T-Bill that you purchased through treasurydirect.gov you'll have to wait until matures. The problem with tapping into 401(k)s or a traditional IRA is that you could end up paying a 10% penalty or ordinary income rates on the withdrawal. However, your husband is right to consider the retirement plans as part of your overall savings. There are ways to get at it, too. You might be able to withdraw some of the 401(k) money as a loan and pay yourself back over time (assuming your employer lets you borrow against your 401(k).) You can take money out of the IRA and, if you return it all within 60 days, there are no penalty or tax implications. You can only do it once a year. Still, both these strategies have significant financial drawbacks, which is why I don't recommend them. There is an exception: The Roth-IRA. The contributions into a Roth are with after-tax dollars. In a pinch you can withdraw your Roth contributions without paying a penalty or taxes to Uncle Sam. Just leave the investment returns alone, since there is a levy on earning if you do take them out. A Roth is both a retirement savings plan and an emergency pot of money. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/what_is_emergency_savings.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/what_is_emergency_savings.html Retirement savings Savings Wed, 08 Jul 2009 14:57:01 -0800 Question: I was laid off and now I'm living off my savings. No income for the time being. I've been preparing to launch my own business and I'm fortunate because I've always been a good saver, so I don't even have to look for a loan at this point. My question is - where to keep the money I've saved? Most of it is in a savings account (got a good deal on interest, but only until 2010) and some is locked into my previous employer's 401K, earning basically nothing because I'm afraid to go into stocks or bonds. I have a self-employed 401K that's also inactive - same reason: I don't want to lose any of my funds... Love the show and the blog and everything! Thanks for any advice. Rina, Bronx, NY Answer: For the moment, I think you're doing the right thing keeping your money in a savings account. After all, you're taking a big risk starting your own business. Good luck with it, too. I hope your idea succeeds. Business history suggests that the best time for entrepreneurs to open up a new business is during a downturn. The savings is an anchor offsetting the risk you're taking as an entrepreneur. And you need the money to live on. Don't let the stock market paralyze you. There is nothing wring with being conservative. The counsel that equities should form the foundation of a long-term investment portfolio owes a huge debt to the finance insights of Paul Samuelson, the Nobel laureate. For many people I think equities should be part of their retirement portfolio. Yet in an interview I had with Samuelson about a decade ago, he said, "there are lots of reasons to have an equity share which is significant. But it all depends on your risk tolerance. For my late mother, her level of risk tolerance called for a very small equity share. You have to always sell down to the sleeping point." You're a good saver. I'd continue to save for your retirement when your financial circumstances improve. But I'd do it in products that are safe and secure--and allow you to sleep. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/starting_a_business_and_saving.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/starting_a_business_and_saving.html Savings Tue, 07 Jul 2009 16:09:45 -0800 Question: My husband and I are both 50+, with two children of college age. Our house is paid off and we are without debt. He wants to take out a mortgage for 1/2 of the appraised value of our home, betting that inflation is inevitable and invest it in higher interest CDs. Safe bet or stupid investment? Thanks Mary, Towson, MD Answer: I get variations of this question all the time and my answer is always the same: I don't like it. I wouldn't do it. It's an extremely risky investment strategy. I don't even consider it an investment. It's a speculative bet. Right now, millions and millions of Americans are envious of your financial situation. You have no debt. You own your house free and clear. You have a great deal of financial security. Why gamble away your security? If you borrow half the value of your home to invest in CDs you'll have to make those interest and principal payments no matter what. The interest payments on the debt will be higher than what you can earn on a short-term CD at the moment. You'll pay a steep "fee" while you wait to profit from your strategy. Of course, there is a school of Wall Street thought that believes high and rising inflation lies in our future. A number of economists worry we could suffer through a reprise of the 1970s inflation rates following the extraordinary actions the Federal Reserve has taken to bail out the banking system and avoid a depression. It could happen. It's a real risk. Thing is, it might not happen. Inflation could stay tame. Instead of borrowing I would buy shelter from the potential inflation storm by investing in safe, high-quality securities that offer a hedge against inflation. Treasury bills, for example, hold their value even during inflationary times because you can reinvest the money at higher interest rates if inflation does stir. The same holds for a mix of savings accounts, short-term CDs, I-bonds and Treasury Inflation Protected Securities. Best of all, you'll still be debt free and own your home. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/estborrow_to_inv.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/estborrow_to_inv.html Debt Housing Investing Mon, 06 Jul 2009 13:55:13 -0800 Question: I took out a Parent Plus loan with Sallie Mae when my son started school. He's finished now. Can I get the loan changed to his name? Thanks. Mary, Breese, IL Answer: No, Parent PLUS loans are the financial responsibility of the parents, not the student. You could ask your son to make the payments for you on the PLUS loan. But if he misses payments and falls behind you are still responsible. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/parent_plus_loans.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/07/parent_plus_loans.html Paying for college Wed, 01 Jul 2009 14:08:02 -0800 Question: Is it worthwhile for me to defer receiving Social Security benefits for a few years until I actually need them? I am started receiving benefits at age 62 and am now 66. I would like to defer the payments until the age of 71 or longer, if possible. I have heard that the payments can be stopped and restarted at a later date, but I have been unable to locate any information on this on the Social Security website. Do you have any suggestions or comments? I am a faithful listener. Thank you for the informative and entertaining programs you present each Sunday night! Nancy, Mountain View, CA. Answer: The tactic is commonly known as "claim and suspend." If you voluntarily suspend your Social Security payments you will earn retirement credits that will permanent increase your future monthly benefits. It can be a smart strategy if you earn enough to support yourself without the Social Security money. If the numbers work in your favor, suspending will increase the amount of future monthly Social Security benefits you'll receive. Those benefits are valuable since they're default free, payable for life and protected against increases in the consumer price index. You can elect to suspend if you are at your full retirement age, which is age 66 for those born between 1943 and 1954. You must be 70 and under to do it. So, you can't defer to 71. You should be able to go to any Social Security office and make the request and the form. You can also call 1-800-772-1213. Anne Tergesen, a terrific reporter at the Wall Street Journal (and former colleague) did a nice piece on this. For those interested in going into much more detail, the Center for Retirement Research at Boston College looked into claim -and-suspend. The information is good but the article is dense and scholarly. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/claim_and_suspend_social_secur.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/claim_and_suspend_social_secur.html Retirement Retirement savings Social Security Wall Street Woes Tue, 30 Jun 2009 16:05:05 -0800 Question: I have paid off all my credit cards, and am now looking to work on one car loan and then my student loans after that. I am trying to figure out what to do with these 4 credit card accounts now. Do I simply close them out? Do I keep them at a 0 balance but pay the yearly fees for the sake of an improved credit score? What do you recommend? Thank you, Ed, Key Largo, FL Answer: I bet it feels good to get rid of your debts. It's terrific. I wouldn't clutter up your finances with multiple credit cards. I can't think of a good reason why anyone wants more than one. An exception to that rule is freelancers and other self-employed folks. It's a savvy move for them to have one card for personal use and the other for business expenses. It makes record keeping easier. What's more, why pay a fee for something you don't need. Go through the cards and decide which offers the best features for the lowest cost. You should also take into account the length you've owned the card. The longer you've had it the bigger its impact on your credit score. Closing the remaining accounts will ding your credit score somewhat, but the effect is fairly limited and with good habits your score will bounce back. The only real issue is timing. If there is a major purchase in your immediate future, such as buying a home, leave your unused accounts alone until the deal is done. Then close them. One last point: Do you really need a credit card? Or is a debit card enough? A debit card is an electronic checkbook and, with a debit card, you can't spend more than you have in your checking account. In an epic shift, consumers are now using debit cards more than credit cards. It's a wothwhile question to ask. I do need one, but a friend of mine decided he didn't. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/how_many_credit_cards.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/how_many_credit_cards.html Credit cards Credit report, credit score Mon, 29 Jun 2009 11:49:02 -0800 Question: My daughter recently lost her job in Las Vegas, NV, had to vacate an apartment & will be unable to complete the lease. She forfeited her deposit, a month's rent and otherwise fulfilled all terms of the lease. She advised the manager immediately but has since moved to another state to find other employment. She has gotten a notice stating the matter is being turned over to a collection agency to pay the remainder of lease, about $3,500.00. In addition to this, she also has outstanding student loans and the bank representatives have refused to discuss a reasonable payment program, meanwhile the payment amounts are rapidly escalating due to interest. Where can she go for help to guide her through the process of negotiating rather than allowing the situation to get worse & worse? She simply cannot meet these obligations and is down to bare essentials of living and whatever small amount of help I can provide. Thanks, Claire, Tallahassee, FL Answer: That's a tough situation. She should steer clear of the outfits that advertise on the radio and cable saying they'll renegotiate your debts for a hefty fee. Too many of these outfits take advantage of people already down on their luck. It's hard to figure which ones are legitimate and which ones aren't. I'm not sure where your daughter is living right now. But to get started she should go to the website of the National Foundation for Credit Counseling (NFCC). It's the largest national nonprofit credit counseling organization and their website is www.nfcc.org. It's a legitimate organization, and she should set up a consult with an office near where she is living. A number of the NFCC consumer credit counseling services offer credit and bankruptcy advice over the phone and the Internet, too, and she can learn which ones at the website. But I always think it's good to have at least an initial meeting face to face, especially with such a difficult, emotional topic. If you would like to check out this possibility on your own for your daughter, there is the CCCS of Central Florida and the Florida Gulf Coast in Tallahassee. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/getting_debt_help.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/getting_debt_help.html Credit counseling Debt Fri, 26 Jun 2009 15:07:00 -0800 Question: My only debt after I sell my house will be a student loan. Here is the info on that loan: Principal: $13,741.43 Rate: 1.65% Monthly payment: $123.63 I don't think that there is an early pay off fee. I'll have enough $ from the sale of the house and cashing in other investments to pay it off. Should I? Or should I invest it in something that is uber secure with a higher interest rate? I like the idea of living debt free...aside from house payment. Just want to know my options. Would love your thoughts. Thanks, Austin, Louisville, KY Answer: It's wonderful to live debt free. Even though the rate on your student loan is extremely low it's still better to be free of a monthly debt obligation. I certainly felt that when I paid off my car loan. It's much easier to build up savings every month when you aren't paying down a loan, too. Why wouldn't you eliminate the debt? The main reason would be if you're nervous about losing your job. I would park the money into an ultra-safe government-insured savings account if a layoff is in your near future or even if there is a strong possibility that you might get handed a pink slip. Another reason to hesitate might be if you don't have any emergency savings set aside. In that case, you might want to some of the money into savings and the rest into paying a chunk of the loan. Still, if you're reasonably secure I'd pay off the loan. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/pay_off_student_loans.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/pay_off_student_loans.html Debt Savings Wall Street Woes Fri, 26 Jun 2009 04:03:20 -0800 Question: My 18 year old daughter is graduating high school and going on to college. She has had odd jobs, but has earned no more than $600. I would like to open an IRA for her to get her thinking and planning for her future. Can I open an IRA for her for more than what she has earned? Thank you. Olga, Hasbrouck Heights, NJ Answer: I think it's a wonderful idea for her to open up an IRA. The contribution limit to an IRA if you're under 50 is $5,000 (and its $6,000 if you're 50 or over). However, the law says she can't put more into an IRA than her earned income. So her limit is around $600. By the way, I would set up a Roth-IRA. When she retires several decades from now she can withdraw the gain with no tax liability. What's more, the contributions are a stash of emergency money. She can always tap the contributions without penalty or tax. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/question_my_18_year_old.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/question_my_18_year_old.html IRAs Retirement savings Wed, 24 Jun 2009 15:27:50 -0800 Question: I am trying to balance saving enough money in case I lose my job and paying down my current (and increasing) student loan debt. I work full time and am a part-time law school student. I have pre-existing school loan debt from another graduate degree (about $45,000). Now, I'm accruing more by attending law school. The pre-existing loans are deferred, but I could still make payments since I'm working. I am not sure how to balance making sure I have enough savings and paying off the debt. Right now, I have a solid 10 months of expenses in savings (not counting any of my retirement savings). Should I stop worrying about the savings and start paying down the school loans again? Rebecca, Hoboken, NJ Answer: As you well know, the cost of living in the New York City area is expensive. It's impressive that you've accumulated a solid 10 months in savings. It's a decent financial cushion for anyone. It's a judgment call, but a key for answering this question is this: Is your job is really at risk or are you just feeling the general unease we all have about our jobs during the economic downturn. Assuming that you are reasonably secure in your job I would start paying down the student loans again. And then you can get even more aggressive when you get a job as a lawyer. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/save_more_or_attack_student_lo.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/save_more_or_attack_student_lo.html Paying for college Savings graduate school Mon, 22 Jun 2009 11:06:20 -0800 Question: My wife and I have an Adjustable Rate Mortgage on our home with a current interest rate of 6.125%. We recently received two letters from the lender presenting us with two options. The first is to accept an interest rate adjustment which would decrease the rate to 4.125% and lower our mortgage payment by about $300 / month. The second option is to convert the loan over to a fixed rate mortgage with an interest rate of 5.00% for a one time fee of $250. This would decrease our current loan payment by $175.00 / month. We will also have the option to convert the mortgage next year. My question is should we wait on converting the loan to a fixed rate and take advantage of the 4.125% interest rate for the next 12 months, and convert next year and hope to get a decent fixed interest rate. I know we are taking a gamble on the interest rates a year from now, but having an extra $300 / month for the next to put toward our savings would be pretty nice. Paul, Olive Branch, MS Answer: Boy, the trade-off between risk and reward would push me to grab a fixed rate mortgage at 5%. That's an attractive rate. The $250 conversion fee is minimal. Once you have locked in the fixed rate it doesn't matter how high rates go in coming years. You're protected. If rates trend lower, you can always refinance. I wouldn't minimize the risk of higher interest rates when it comes time to reset the rate next year. The savings aren't great with the ARM anyway. If you stick with the ARM you'll have an extra $3,600 for the year. That's a nice piece of change. But if you convert to the fixed rate mortgage you'll still have improved your yearly cash flow by $1,850 ($175 a month in savings minus the $250 fee). And you will have locked in that extra monthly cash cushion. So, for an extra $1,750 (he difference between your savings with the ARM and the fixed rate) you're accepting the risk of a higher rest rate a year from now. There's no guarantee the lender will offer the same deal, either. It doesn't seem worth it to me to stick with the ARM. Why gamble? Our money lives are difficult enough these days. There is a lot to be said for grabbing for some financial certainty. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/stick_with_adjustable_rate_mor.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/stick_with_adjustable_rate_mor.html Debt Housing Fri, 19 Jun 2009 11:34:11 -0800 Question: I am a first time homeowner ready to go ahead with the purchase except for the dreaded "lock" of the interest rate. My closing is set for August 10 so I am still at the 60 day lock rate which today at 4 pm is 5.375%. (Of course, if I was closer to my closing AND I had watched the rates after Obama's speech this morning, I could have locked in at 5 and 1/8!!) Am I the only one who is not only confused but resentful at just how much of a crap shoot this is? Who has the time or moxy to watch rates minute by minute? All I know is that for me the difference between 5 and 5 375% is $13,000. A lot of money in my book. Will rates come down before my closing? Is there any truth to the rumor that if unemployment rates are up at the end of the month, rates will be lower? Are there indicators that you can watch for? Or should I just resort to an Ouija board or the Psychic Hot Line? HELP! I am an avid listener and look to you for sage advice! Carol, Jordan, MN Answer: No one knows where interest rates will be come August 10. You can consult an Ouija board, tea leaves, entrails, a psychic hotline, an economist or Wall Street money maven and the value of their prediction will be pretty much the same--not much. The unemployment rate could be higher at the beginning of next month and interest rates could be lower; then again, rates could be higher; and so on. As the movie mogul Samuel Goldwyn once remarked, "Predictions are very difficult to make--especially about the future." Here's the thing: The advantages and disadvantages of a mortgage rate lock-in has nothing to do with forecasting interest rates. It's a risk management tool. If you lock in current mortgage rates you eliminate the risk that rates will be higher in the beginning of August. The price you pay for that security or promise is this: If rates go down you don't enjoy the lower rate. You can't get rid of the uncertainty about interest rates. What you can do is manage the risk. The question for you then becomes which gamble makes the most financial sense. For most of us, it pays to get rid of the financial danger of rising rates before the closing date. That's what I would do. But some people are flush enough and have sufficient financial resources that it's a reasonable not to take the lock-in and bet that rates will be lower in the intervening weeks. You can learn much more about the costs and benefits of the lock-in at this consumer guide published by HSH here. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/the_mortgage_lock-in.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/the_mortgage_lock-in.html Debt Housing Fri, 19 Jun 2009 04:14:20 -0800 Question: I'm interested in finding a good investment for inflationary times. This would be about 7% of my retirement portfolio; around 10,000 in cash languishing in 2 different IRA accounts. I am 42, and will probably have to work until I croak. I am guessing I'll retire at 75 or so. I considered purchasing some I Bonds in an IRA account. I'd like to be able to sweep the proceeds of a dividend-yielding investment into the bonds once a year. I contacted my stock-trading account - no dice on holding I Bonds in my account there. I contacted Treasury Direct and they told me I needed to find a bank that would hold the bonds in an IRA and also contact the IRS. Do I need to call all the banks in town to see if anyone will do this? Is there a kind of bank that I should focus on? A directory that would help? Am I trying to do something completely wacko and ill-advised? Jill, Northfield, MN Answer: I wouldn't say "wacko". But ill-advised? Yes. For a number of technical and legal reasons you can't get I-bonds into an IRA. More importantly, you wouldn't want to do that anyway. In a sense, an I-bond acts like an IRA. The money you put into an I-bond compounds tax deferred until you cash it in. At that point you owe ordinary income taxes on the gain. With an IRA, your investment grows tax deferred until you pull it out in retirement and pay ordinary incomes taxes on the withdrawal. You'd be wasting the tax shelter if you could invest it in an IRA. That said, I like I-bonds. I would just buy them directly from the Treasury. Inflation isn't much of a problem right now. The government reported this morning that the Consumer Price Index for the 12 months ending in May was down 1.3%, the biggest decline since 1950. I'm not very concerned that the Federal Reserve extraordinary actions to shore up the economy will end in a bout of hyperinflation, either. The formidable combination of an intensely competitive global economy and a competent central bank will keep inflation around its target level of 1% to 2%. Of course, that forecast could be horribly wrong and a reprise of the inflationary '70s awaits us. Even if I am right low levels of inflation erode the value of a dollar over time. Long-term savers should worry about inflation a lot. That's why I like Treasury Inflation Protected Securities or TIPS. It's an ideal security for an IRA, although you'll have to buy them from a broker. I've written a fair amount about TIPS elsewhere on the Getting Personal site. The best overall source of information for investing in TIPS and similar securities for safety and security is Worry Free Investing by Zvi Bodie, finance professor at Boston University. You can check it out here. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/inflation_and_an_ira.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/inflation_and_an_ira.html IRAs Investing Retirement savings Savings Taxes Wall Street Woes Wed, 17 Jun 2009 11:04:44 -0800 Question: The company I work for offers a 401k, both normal pre-tax contributions and after-tax contributions, and also a Roth-401K. Can you please explain the differences between the Roth-401K and the post-tax contributions to the normal 401k? Erik, Tulsa, OK Answer: Yes, in both instances you're making after-tax contributions. There are a number of differences between the two options, but I want to highlight the critical one that becomes apparent in retirement. When you take the money out of the Roth-401(k), assuming you are at least 59 ½ and have owned the account for 5 years or more, the investment gains are free of Uncle Sam clutches. The same isn't true for withdrawals from the after-tax account in a traditional 401(k). There isn't any tax levy on the amounts you contributed, of course. But you will pay ordinary income taxes on any investment earnings or gains at withdrawal. By the way, in most cases it makes more sense for savers to open up a Roth-IRA on their own rather than put extra retirement money into an 401(k) after-tax account, assuming your employer offer the option. The reason is the value of withdrawing money free of taxes in old age with the Roth. ]]> http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/after-tax_retirement_savings.html http://www.publicradio.org/columns/marketplace/gettingpersonal/2009/06/after-tax_retirement_savings.html 401k Retirement savings Tue, 16 Jun 2009 14:56:31 -0800