Question: I'm trying to figure out how much to contribute to my 401(k) plan. In deciding between capital appreciation strategies and tax-minimization strategies, is it always beneficial to max out your pretax nonmatch account before contributing to your after-tax match account?

TB: A key word in your question is always. There are very few (if any) investment/tax questions where one approach is always best. First, your plan design is very unusual if you must choose between pretax contributions that are not matched or after-tax contributions that are matched. I have seen plans with the reverse design but never one like yours, if I understand you correctly.

Which is better depends upon a number of factors, including: 1. your tax bracket, 2. the amount of the matching contribution, 3. whether you expect to stay long enough to vest, 4. whether the investment options are the same for both types of contributions, and 5. whether taking the money out for some reason other than retirement is likely.

I would go with the after-tax matched contribution if the match exceeded my effective tax rate, I expected to stay long enough to get the match, and the investment options were the same with both types of contributions. Otherwise, I would contribute the maximum amount pretax.

Question: In October 2000, my bosses left our firm to create another firm. I went with them, and my old 401(k) was supposedly rolled over into our new 401(k). I signed the papers for the new 401(k) in December 2000.

Today, I received a memo stating that the money has recently been withheld for contribution, is in the process of being forwarded and will be showing in my account in the near future. What does this mean? I asked my boss and he said that it was probably a good thing because of the current market. Incidentally, I have been contributing to my new 401(k) since February. Am I okay?

TB: The owners at your former employer may not be very happy that your boss and others left to start a new business. As a result, transferring your account balances is probably not one of their top priorities. Still, they may also be making a matching or profit-sharing contribution for last year, which may take a while to process. In any event, I would inform your former employer in writing that you will ask the Department of Labor for help if your account isn't transferred soon.

I don't agree with your boss's comment that it is good that your account hasn't been transferred, unless the plan at your former employer requires your account to be transferred based upon the value as of Dec. 31, 2000. If this is not the case, your former employer may be holding the money until after the March 31 valuation date so that you get the March 31 value rather than the Dec. 31 value. If they do this, you may need to get legal help if you have a large amount of money in the plan.

You should eventually receive a transfer — the question will be how the value is determined. Your former employer is required to follow the terms of the plan in effect when you terminated but may try to find an alternative to pay you out on more current values if the plan requires benefits to be paid using the value as of the last valuation date.

Ted Benna, creator of the first 401(k) retirement savings plan, will answer your most intriguing questions every Tuesday. With over 30 years of experience as an employee benefits consultant, Ted is a nationally recognized expert on benefits issues. He has authored two books, Helping Employees Achieve Retirement Income Security and Escaping the Coming Retirement Crisis, and is President of the 401(k) Association. Ted is a frequent speaker at meetings of 401(k) plan sponsors and participants. His articles and comments have appeared in numerous publications, including The New York Times and The Wall Street Journal.

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The information provided here is intended to help you understand the general issue and does not constitute any tax, investment or legal advice. Consult your financial, tax or legal advisor regarding your own unique situation and your company's benefits representative for rules specific to your plan.

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