These are great questions. In fact, questions regarding Roth IRA's and 401(k)'s are some of the most commonly ask of our advisors at Catalyst Wealth Management. I would suggest that there are a couple of questions within yours that we should address.

1) Can you contribute to a Roth IRA if you already have a 401(k) through your employer?

Yes, you may contribute to a Roth if you have a 401(k), provided that you meet the eligibility requirements below.

In 2011, the adjusted gross income limits are:

• Single filers, Head of Household, or Married Filing Separately (and you did not live with your spouse during the year), with modified adjusted gross income up to $107,000 can make a full contribution.  Contributions are phased out starting at $107,000, and you cannot make a contribution if your adjusted gross income is in excess of $122,000.
• Joint filers with modified adjusted gross income up to $169,000 can make a full contribution.  Once again, this contribution is phased out starting at $169,000 and you cannot make a contribution if your adjusted gross income is in excess of $179,000.
• If your tax filing status is Married Filing Separately (and you live with your spouse) you cannot make a Roth IRA contribution if your AGI is in excess of $10,000.

2) An additional question would be whether or not you should start a Roth IRA?

For many individuals that we work with it is advantagous to create a place to invest in a tax free manner. Often times it is enticing to take this step prior to executing the first two steps of financial planning:

• Protection Planning
• General Emergency Reserve Savings

So, prior to saving in a long term instrument you should have proper Protection devices in place. These include Maximum Liability Coverages, Maximum Disability Insurance Protection (to include retirement and savings contributions), Maximum Health Care Insurance, Proper use of Wills and Trusts with beneficiary designations which are coordinated with other assets and lastly Maximum Life Insurance Protection, equal to their economic value.

Next, create an emergency reserve. This step alone will allow you to avoid many financial pitfalls in life. Have a amount equal to 6 months of gross income that is accessible without penalty. This money shouldn't be in an account that is subject to market volatility. Ideally this should be in an account that is creditor protected, tax free and contains minimum interest guarantees. Again remember this is safe money so do not allow it to be stock market based. Cash on hand also allows you to act on opportunities when they present themselves!

Once we have completed the steps above we may consider utilizing "Rules Based Plans". Plans such as 401(k), Roth IRA and even Roth 401(k) plans when available from an employer. I would encourage you to work with an advisor to determine whether it is appropriate to open a Roth IRA. It is certainly easy to go online with a discount provider to open such an account. However, I would want you to consider not only the steps/items mentioned above but also:

• todays income vs your retirement income: Could your tax rates increase? Could your actual tax bracket increase even when your income has not increased?
• will I have tax deductions/write offs during retirement?
• am I losing a match by participating?or not participating?
• are there other places to get a match on my money beyond my employer?
• what happens if the retirement age changes in the Rules Based/Government plans?
• what if you want to retire early? 
• are there other options for tax free investing?
• investment options - Stocks, Bonds, Mutual Funds, ETF's, Real Estate, Commodities etc.
• what is the proper asset allocation? When and how will I rebalance this allocation or change it?
• do these investment options have any guarantees against loss?
• how do I turn these investments into an income when I do retire? Can I assure an income that will not run out?

3) What is the best way to open a Roth? 

As you see there are numerous questions that should be understood prior to investing into any program or plan. I recommend choosing an advisor to assist in opening these types of accounts, but again you do not have to choose that method. It can certainly be done online with companies like Fidelity, Vanguard etc. Remember that these companies do charge for their services and you do not always pay more when an advisor helps in your planning. A skilled advisor could help you pay less. Hopefully, this adequately answered your questions, but if I created some additional questions please feel free to let me know and we will do our best to address them. Thanks for joining us in this forum.

Todd Burkhalter

Traditional Plan (Real Estate)

Allows for ongoing contributions or deposits (sounds like a mortgage)

Has a matching plan: meaning someone else also is contributing on your behalf (sounds like a weekend/part or full time renter)

Potential to appreciate in value (Real Estate can appreciate in value)

Tax Benefits (Real Estate can provide tax benefits)

Creditor Protection (Owning real estate in an LLC can add some asset protection)

Provide an income in the future (Rental income or additional mortgage options)

Last Consideration:
Have you ever gathered the kids or grandkids up to go and roast smores or play at your financial institution/401(k) provider? .........Probably not. There can be great enjoyment out of the right property, but it takes careful planning.

 Ideally, this should be done without any additional out of pocket cost. I will explain further, not every person that holds themselves out as a financial advisor is licensed to charge a fee for their planning. There is a big push in the media to go to a fee only financial planner, so my earlier statement of "No additional out of pocket cost" should be achieved whether or not you pay a fee. This can be done through utilizing the most cost effective financial products and cost recovery strategies. Rather than focusing on the cost of the plan a more important measurement is the likelihood of achieving the desired result of the plan.

 It is important to be efficient. Efficiency is balancing costs and the lost opportunity costs of any fees and expenses with the potential benefits and increased money supply that the plan produces.

Great question it seems as though many Americans are simply thinking of the 401(k) as somewhat of a Swiss Army knife for their financial life. When in fact there are many other items to consider. The 401(k) consideration typically begins around step 3 of a Financial Plan. First, would be to create Maximum Protection within your financial plan. Protection should always come first since we do not know when these items will be needed. They must always be ready and perfect. Unfortunately, we are not typically notified when we will become sick, hurt, have an accident or get sued. The protection items would include:

• Auto/Home and Liability Protection
• Disability Income Protection
• Health Insurance Protection
• Proper structure of Wills, Trusts etc
• Full Economic Value of Life Insurance

The second step would be to have 6 Months of income available as a safety reserve, the emergency reserve.

Then you should consider the Government sponsored programs like 401(k)'s or IRA's. I would caution that these areas can be Tax Traps for some. Many people will defer their income at todays tax rates, only to make their withdrawals at future potentially higher tax rates.

So what should you consider: We encourage most of our clients to look at ways to invest into Tax Free opportunities that maintain their ability to use and enjoy their wealth. Meaning not tying it up where they can't use it. Some of these items might include:

• Whole Life Insurance
• Roth IRA/401(k) Plans (Careful on Liquidity)
• Municipal Bond Portfolios (possibly in a Unit Investment Trust)
• Real Estate (can be achieved with proper 1031 Exchange use)
• Tax advantaged Exchange Traded Funds (ETF)
• Investments with Tax Credits

To finalize your question, there are additional items to consider when participating in a Corporate Sponsored 401(k) like I have indicated above. Ultimately, I would encourage you to visit with your HR director and consider utilizing an In-Service Withdrawal feature that many plans now have. This feature gives you the chance to carve out a portion of your current plan and invest it externally where you can implement guaranteed downside protection and Growth, while you are still participating in the company plan. A great advantage that many companies are adding to give their employees more options, while reducing their fiduciary responsibility of mandating your investment choices. I have a list of approximately 300 companies that now allow this feature and the list is growing every day.