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Avoid company 401(k) choices?

Question: I want to start putting money into a Roth 401k but do not want to invest in mutual funds which is all my company plan provides. What are the IRS rules? Can I start my own account even if my company has a plan? Edith, Minneapolis, MN

Answer: With a 401(k)--whether a Roth or the traditional pretax version--you're limited to the investment choices picked by your employer. I would still recommend that you participate in the plan, sticking with its lower-cost well-diversified mutual fund options. So, if you want to join your company's Roth 401(k) you have to invest your money into its menu of investments.

However, you can always open up your own Roth-IRA in addition to joining your employer's plan, assuming you come under the adjusted gross income limits. These limits are established by law.

Let's go to the numbers: For 2010, married individuals filing jointly can make the maximum contribution of $5,000 ($6,000 if you're 50 or older) if their modified adjusted gross income is below $167,000. The contribution amount is reduced with a modified adjusted gross income between $167,000 and $177,000. You can't open a Roth with earnings above $177,000. For single filers the income phase-out starts at $105,000 and ends at $120,000. You're out of luck if you earn more than $120,000. Of course, you also have a very good salary if that's the case.

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About the author

Chris Farrell is the economics editor of Marketplace Money.
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