franklin.bowen[at]gmail.com wrote:
- quote -

Unless the 401(k) fees are very low (as low as you will find outside the
401) the matching level is likely the place to stop.

- quote -

Indeed, but that's money that can be re-cycled once you know the answer
to the below.

- quote -

Let us know.
JOE

joetaxpayer wrote:
- quote -

Thanks for the feedback everyone! Some more information:

My company matches 50% on the dollar up to 6% of employee's salary. I
am contributing at least 6% to my 401K.

I understand an ESOP is different from IRAs, but it is one of my
choices in figuring out how to get the most bang for my buck,
literally? ;-)

- quote -

I do not know the answers to these questions. I will investigate and
report back.


======================================= MODERATOR'S COMMENT:
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franklin.bowen[at]gmail.com wrote:

- quote -

1) Max out the ESOP and be prepared to flip the stock when it hits the
account. This is a 17% return (100/85) on an average holding period of 3
months. (deposits over 6 months, right?) Even if you take on some debt,
this pays off. There are variation on this plan, such as sell only 90%
of the stock. You'd get all your money back, plus a bit more, and have
10% invested in this stock. It would take years till this became over
weighted in your portfolio.

2) If the 401 offers a match, put in as much money as gets matched.

3) MAX out the Roth, if you are eligible.

4) go back to the 401 till that's maxed.


The fear of having too much pre-tax money in retirement is valid, but
unlikely. You'd first have to in a low bracket now, say 15%, which is
single taxable up to $29.7K, but somehow save enough to force
withdrawals above that amount to jump to the 25% bracket.
JOE

Elle wrote:
- quote -

Sweet Jumpin' Moses! I can't believe I forgot to mention that. Thanks
for watching my back, Elle. Even though I prefer the Roth to the 401k,
you can never afford to pass up free money in the form of an employer
401k match.

--Bill

Does your employer match any of your contribution to the
401(k)?

With a lot of unknowns and no hunches on what the future
holds, diversifying is the optimal choice, ultimately
landing you not in the winner's circle nor in the loser's
circle but instead allowing you to sleep at night.

franklin.bowen[at]gmail.com wrote:
- quote -

I would think about the ESOP in a very different way than a Roth or
401k. Your 401k and Roth are for retirement planning. The ESOP is
more general.

That being said, there's a very crucial piece of information missing
from your post. How soon can you turn around and sell the stock? Is
your company publicly traded? Or will you have to sell your stock back
to the owners?

If you can cash out in a reasonable amount of time (say, less than 6
months) with a 15% gain, I'd say that's an opportunity you simply can't
pass up. But I would advise against holding your company's stock for a
long period of time. It's nothing against your company. I just don't
advise people to hold individual stocks at all.

And really, you can just put the proceeds from the ESOP in to your Roth
or 401k. OK, you can't put the proceeds DIRECTLY in your 401k, but you
can accomplish it indirectly.

As far as 401k vs. Roth, I'm going to assume you have a traditional
401k (as opposed to a 401k with the Roth option). By default, I always
advise people to prefer the Roth because of the flexibility and the
simplicity. But your specific tax situation will dictate whether the
Roth or 401k is better. If you're unsure, I'd stick with the Roth.

However, the Roth has a low contribution limit ($4K for 2006). So you
may max it out and then want to tax-advantage more money. At that
point, I'd go back to your 401k.

--Bill

Which is best: 401K, ESOP (with 15% discount from employer), Roth, or
... ?

I looked around some but could not find a comparison of these 3
options. I was going to put the max into my company's ESOP because
they offer a 15% discount on the stock price ("free" money, right?) but
since I have sold all my other ESOP stock in the past, I thought the
401K may be a better choice for me. Then I realized that I could
choose neither of the company offerings but just add to my Roth IRA or
do a combination of all 3. ACK! Too many choices with too many
unknowns!

A list of pros/cons would probably make my decision easier so here is
what I think I know:

401K
Pro: Pre-tax dollars deposited
Pro: 10% penalty makes it 3rd choice to tap
?: Must pay taxes on withdrawl. *IF* I am in a lower tax bracket when
I retire, this is a Pro. If I am not or the tax rate is increased,
this is a Con

ESOP
Pro: Immediate 15% return on my money
Con: Dependent on company stock performance.
Con: Easy access & no penalty makes it first choice to tap when money
is needed

Roth IRA
Pro: Do not need to pay taxes on withdrawl
Pro: 10% penalty on withdrawl of gains (not principal), 2nd choice to
tap
Con: Taxes already paid on deposits at real tax rate. This would turn
into a Pro if the income tax rate is increased.

Pointers to information, additions, corrections, and comments/opinions
greatly appreciated. Thanks!