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Retirement 401(K) Pros And Cons

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May 17, 2013 - Retirement 401(k) Pros and Cons - by Morningstar Investment Research

Morningstar assistant site editor Jason Stipp recently sat down with Christine Benz, Morningstar's director of personal finance, to discuss some of the benefits and drawbacks of these common retirement-savings vehicles. Although 401(k)s are becoming the primary option to stow cash away for retirement, they are not all cut from the same cloth. Benz addressed how these plans provide discipline in the retirement-investing process, how workers can take advantage of employer contribution matches, and how investors likely have a wider pool of assets from which to choose versus investing outside a 401(k). However, B enz also talked about the negative sides of 401(k) plans, such as those that have higher fees and fewer investment options than other plans. Watch the entire video here (transcript included).

Roth IRAs vs. 529s--A College-Savings Smackdown

Rather than use a 529 college-savings plan to provide for college expenses in the future, I plan to use a Roth IRA and invest the money in a target-date fund based on when my child will enter college. Any problems with this plan?

Morningstar assistant site editor Adam Zoll said that using a Roth IRA to save for college can be an intriguing idea. One reason is that Roth IRA contributions can be withdrawn tax-free for any purpose. And while you'll typically face taxes and a 10% early-withdrawal penalty if you take out investment earnings from your Roth before age 59 1/2, the 10% penalty usually assessed for early withdrawals from an IRA is waived if funds are used to pay for college tuition, books, fees, and other qualified expenses. In most cases, parents would likely consider using their own Roth IRAs to help pay for college. But should you do it?

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