Wednesday, January 13, 2010

Alpaca's 401K - More Developments

Two days ago I wrote a post about Alpaca's new 401K plan and about how we chose the ROTH 401K option for her. A comment by one of my anonymous readers changed my mind. He directed me to this post by the Finance Buff, which is extremely informative and well written. I thought that most of the arguments offered against ROTH 401K, while valid, did not apply to Alpaca and I. However, one specific argument hit right home: AMT...

The darn stealth tax. I didn't think about that when we looked at the ROTH 401K option. In 2008 we were caught by its nasty snare. In 2009 I think we will narrowly escape its grasp since Alpaca was unemployed for much of the year and worked as a part time contractor for much of the rest. However, if both Alpaca and I remain employed this year (keep those fingers crossed, people), AMT is pretty much assured. We have 3 kids, make a decent living and live in California - a high tax state. These are all crimes and misdemeanors that justify a fat fine under the American tax code. Damn it. I knew I should have opened an investment bank or mortgage company. That way we could have been getting all that taxpayer money instead of being actual... taxpayers...

Anyway, no more ROTH 401K. This morning Alpaca switched her contributions to a traditional 401K. This anonymous reader probably saved us a nice chunk of change. Thank you, anonymous. Watch the skies for that Bat Signal, in case we need you again! I guess writing this blog has some value after all... :-)

In other (good) news, Alpaca received notice today that her 401K plan was changing its fund line-up, and will from now on include an international index fund (FSIIX) with an impressively low expense ratio of 0.2%. Consequently, Alpaca will dump her previous international fund choice (allocated at 10%), reduce her Total Market Index contribution from 70% to 50% of her allocation, and will allocate 30% of her contributions to the new international index fund. This will bring Alpaca's 401K contributions more or less inline with our overall portfolio asset allocation.

Next week my own Fidelity 401K representative will be visiting our office, and I intend to make a vocal case for the inclusion of the same international index fund in our own plan.

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