Answers and Guides from Top Financial Advisors

Jenna, There is a lot of good information here. I would only add that if your income is below the Roth IRA threshold of $178,000 for marrieds and $127,000 for singles you can contribute to both the 401k Roth and the Roth IRA. Aside from the differing limits and contribution amounts they both provide the same future tax benefit.

Jenna, don't listen to these guys. NOT, just kidding. This is all good info for you. With Gina's comments as a base platform. Thank you for looking into a Roth of any kind. Too many have not seriously considered the long term advantages of paying the tax now instead of later. Do you think taxes will go up in the future or down? Unless you plan on making a lot less money in retirement than you do now, you will not necessarily be in a lower tax bracket when you retire. The generation older than you was constantly told to pile as much in their tax deferred plans as possible. Now, many of them are retiring with this huge basket of fully taxable money and they are not liking it. That's the deal they cut though. So, look at both options as a deal that you are making with certain rules. Which set of rules do you like the best?

As you've seen above, annual contribution limits are one of the biggest considerations. Also, investment choices are a big consideration. Inside the company plan, you may be limited or you may not. We know that outside the company plan, you are not limited in your investment choices. You also heard "accessibility" mentioned above. They are talking about all of the rules associated with a company plan. Getting that company match though, wow, if you have it, that could be great. So, this is why you see us urge you to speak with a planner to help company the pros and cons in relation to your other details. Thanks for asking.

Jenna, Although there is lots of good information above, I particularly like Gina's commentary, as any comments you receive are based on generalizations and are far more effective when your unique situation is thoroughly understood. An answer that might be appropriate for one individual may not be optimal for someone else. A financial adviser could help in this process. It is important to build well-though-out, comprehensive strategies, not based on sound bites, that can have a strong positive impact on your financial future. As we consider generalizations: Any matching in your 401(k) is an important factor as we almost never want to leave "free money" on the table. In addition, a Roth IRA (if you are eligible) can provide many more investment options than the available alternatives in a 401(k).

Hi Jenna from Boston, You have some great answers here. Sometimes I'm torn to answer questions because it truly is what I refer to as sound bite financial planning. If you have the opportunity to sit down with an advisor who can look over your current situation, income, spending, savings - then outline the goals you have for yourself both in the short and long term, I would highly suggest you do so. Every situation is different - financial products are just that, products. You need to have a strategy that will keep you moving in a positive direction with an eye on how you can access the money between now and the time you reach your pinnacle of retirement where you want your money to produce an income for you. In order to do so, there is alot more to the answer based on what you want to have happen. Learning the strategy of using financial products and maintaining the ability to change with economic conditions is a must. I would suggest you find a financial advocate to work with who listens to you and helps you achieve what it is you are wanting to accomplish.

Jenna, the most you can put in an individual Roth is $5500 per year. On an individual Roth, there is an income limit of $112,000 for individuals and $178,000 for couples filing jointly. You could have greater investment options with lower, or at least more controllable fees. Direct contributions into a Roth can be withdrawn tax-free at any time, though rollover contributions need a 5 yr wait.

On a Roth 401(k), the limit on contributions is $17,500. Though there is no income limitation, if your plan does not have 'safe harbor' you could be subject to what is called a corrective distribution. Check with your plan administrator, not HR to be sure you don't get caught up in that. HR may tell you that you can contribute up to $17,500, but the plan administrator will test the plan and send you a check if it fails the test. Distribution is subject to traditional 401(k) rules, meaning there is a penalty for withdrawal before age 59 1/2, 55 if you separate from your employer. Your plan may permit loans, which would not be an option on an individual plan.

Hope this helps.

The main difference between the two is how much can be contributed to each. That maximum you can contribute to a Roth 401K is $17,500 the maximum you can contribute to a Roth IRA is $5500. The other advantage to a Roth 401k is that your employer can match if that is that is the company's policy.

John, advisors that can offer advice and charge a fee are called RIA's, so any RIA , or IAR can give advice for a small fee. The only reason your current broker cannot advise you is because he can't charge a fee. And frankly, for compliance reasons, he should not be giving you free advice. In this highly regulated and litigious industry, if he gives you bad advice, both he and his firm could be liable.

If your 401(k) is with your current employer, it is not likely you can move it anyway. If you are no longer employed there, you should really probably transfer it to an IRA where you could have greater investment options at lower fees.

There are a number of firms that will charge $300-$500 and send you advisories by email as to how to allocate. It is usually up to you to act on the advisories, and so the advice is worthless if you do not stay on top of it. If your 401(k) provides a brokerage account, there are firms that will do that as well. Just google '401k advice for individuals' and you will find a variety of services. I think you would be better off to consider finding someone local that can meet all your needs. Seek referrals from trusted friends, neighbors, and associates.

An important question is how large is your account? If you have a $10,000 account, it really might not make sense to pay someone to manage it, unless you have a financial advisor that will accept it as part on your total financial management plan. If your account is relatively small and you really do not feel comfortable making investment choices and watching it, you may just want to select an asset allocation model that is offered to you by AON. For example, if you can tolerate 'moderate' risk, simply select the 'Moderate Asset Allocation Fund' It is typically a 'fund of funds' to meet your level of risk.

If you have a larger account and you feel you need help, I would consider finding a new advisor. I am not knocking your current advisor, he may be very good. but you should consider your needs.

Jenna, The differences can be summed up as 1) Access and 2) Dollars. To access a Roth 401k your employer has to have that option in your retirement plan. You can elect that option and your salary deferrals will be taken after taxes and posted to that type of account. You can split your 401k contributions between Roth and pre-tax if you want but in total you are restricted to the maximum amount you would have been subject to anyway. To access a Roth IRA you have to have AGI below a certain level. The amount you can contribute is 5 or 6 thousand dollars depending on your age and earned income. Choosing between the two types of accounts depends on which one you have access to and how much money you want to put away. Best of luck.

Roth 401k is at work and a Roth IRA is an individual plan. Both plans have maximum annual contributions so the real question is how much investable assets are you looking to invest for retirement. Both will provide tax free growth and withdrawal in retirement. If you are in good health and want to put larger sums away, then a properly structured life insurance plan would create lifetime tax free income as well.

Specific counsel would require more information and is beyond the scope of this platform. However - In the end- I would say that the Roth / Traditional Split does not matter all that much; What's most important is the % of your income that you invest - and your asset allocation decision.

Just to add a little more information... The plan may not allow an outside advisor to manage the account for you. This is called taking discretionary management authority and the plan sponsor accepts some liability by allowing that to happen. For this to have any value to you within the plan, there should be a brokerage window that would allow your outside advisor to have a broader selection of investments. There are a lot of "ifs" here so if I may offer a suggestion, ask your outside advisor to look at your in-plan investment choices and design a portfolio for you. Our company does that at no charge for clients. Best of Luck!

There are two ways that this could be done, assuming as John Benedict says that the investment adviser is permitted by his or her own firm to do it. The first way is if the Aon Plan has a feature called a "brokerage window" that takes you to a brokerage account permitted by the Plan. You could select the brokerage window as your Plan investment and the investment adviser could then manage the assets in the brokerage account, without being limited to the investment funds offered by the Plan. The second way, if the Aon Plan does not have a brokerage window, is for the investment adviser to access your 401(k) account using one of the confidential data services that are available to advisers for this purpose. The adviser then could manage your 401(k) account for you but would be limited to the use of the investment funds offered by the Plan.

John, If you are no longer working for the company that sponsors your AON 401K plan, there could be advantages to rolling over the assets to an IRA or alternative 401K plan that has more or better investments options. If you are still working for the plan sponsor, you might also check to see if they would allow you to hold your account at a brokerage firm such as TD Ameritrade or Charles Schwab, which could be beneficial. Whether you keep your 401K account where it is or roll it elsewhere, as John stated above, a firm like mine (as Registered Investment Advisor) can manage the investments in your plan and/or advise you in accordance with your goals and objectives. I manage the assets in a number of 401K plans for clients throughout the country, and just took on new one held at Schwab yesterday. Feel free to check out our website at www.winerwealth.com and contact me if you have questions or are interested in my assistance.

John,

I am not familiar with Ameriprise's compliance rules, but this could be their policy. They may not allow their advisers to manage anything for clients without it being in an Ameriprise account or in a product that they sell to clients.

If you are still employed and you want to leave the funds in the existing 401(k), you should seek out a Fee Only Independent Registered Investment Adviser. They should be able to help you manage the 401(k). There are typically two ways that my firm will mange someone's 401(k) and I would assume other advisers could do this for you too. One way is by managing it on a non discretionary basis. By doing this the adviser would give you recommendations of which fund options to use and how to allocate the funds. It would be your responsibility to actually make the recommended changes. The second approach is for the adviser to have discretionary control. With this approach the adviser accepts the responsibility to not only make the recommendations, but also to make sure the changes are done for you. Either way works. It just depends how much control you want to maintain. Also, if you choose this way don't be surprised if the fees charged by the adviser are a little higher for the discretionary management versus non discretionary. This is due to the fact that taking discretionary control the adviser is responsible for the implementation and not only providing you the recommendations.

If you no longer are working for th ecopany another option is to roll the funds to your own IRA and have and adviser manage the funds for you. By doing this the investment options will be greater since you won't have to rely only on a relatively small selection of option inside your 401(k). The investment cost of the investment options could also be lower depending on the type of options you would choose.

I hope this is helpful

Hi John! Here is my question for your advisor: how do you get paid? If he is paid based on the dollar amount of assets he manages, then, yes, you will need to transfer the account in order for him to manage your 401(k) funds. Otherwise, he is not getting paid for the education, advice, and money management he is supplying. Contrary to popular belief, financial advisors don't work for free.

Here is my question for you: what is your reasoning for leaving your 401(k) at AON? If you still work there, that makes sense. If you have left the company, you may want to consider taking the funds with you - kind of a control issue. Also, if you are questioning your advisor's advice, get a second opinion. You want someone you can trust to help manage your retirement funds. Good luck!