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Q: Public companies with their excessive CEO compensation and short-term outlooks for maximum profits are taking a beating in today's economy. Are private companies better suited to handle a recession?
P.M., via e-mail
A: There's little reason to believe that private companies will perform better than public ones. But Kevin Brosious, a fee-only financial planner in Allentown, Pa., says we'll never really know because they don't make any public report of their finances. In some cases, Mr. Brosious believes that public companies may actually be better off due to their larger size and vast resources to draw on (they can sell stock, for instance). The vast majority of private companies are small and may, in his opinion, be exposed during bad times to limitations that come with having a smaller resource base.
Q: I contribute about $20,000 a year tax-deferred into a 401(k). My employer does not contribute. Since in the future (I'm two years from retirement), I'll roll this over into an IRA, would it be better to pay taxes now on the $20,000 and just invest in a regular account? Otherwise, when the money is withdrawn from an IRA, I'll be paying taxes on the entire investment as regular income, not just on the capital gains. I'm assuming that my tax bracket will be the same at retirement.
K.K., via e-mail
A: If your company doesn't match your contributions, Brosious believes that you should make contributions first to a Roth IRA. Then he suggests investing in your company-provided 401(k).
Having both a 401(k) or traditional IRA, and a Roth IRA will allow you to have a mix of tax-deferred and tax-free investments when you retire. The tax landscape in the year you withdraw your savings will determine whether you pull from the tax-deferred account (and pay the tax) or pull from the tax-free one (Roth IRA).
If you still have money after you have maximized your pretax contribution to your 401(k), then Brosious suggests that you consider Exchange Traded Funds for your taxable investments. ETFs will allow you to defer most of the capital gains on your investment until you sell; then they are taxed at the long-term rate.