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Across My Desk



There are two pieces in this Across My Desk report. Both are capsule summaries fro Money Management Executive, an on-line mutual fund industry newsletter. The first looks at the soon-to-be-available Roth 401 (k). The second, at the differences between S&P 500 Index Funds.

401(k) Plan Participants Get Roth Option in 2006

The media is beginning to jump on the Roth 401(k) bandwagon - but whether it will take off with the investing public is a matter of some tax debate. At present, most experts believe those with the highest salaries will take part, The Wall Street Journal reports.

Expanding on the Economic Growth and Tax Relief Reconciliation Act of 2001, the Internal Revenue Service's Treasury division issued a proposal on March 2, 2005 to expand the 401(k) retirement plan by adding a Roth feature to it.

Beginning Jan. 1, 2006, investors in a Roth 401(k) will be able to contribute after-tax dollars to receive tax-free distributions. The reason this will be so appealing to individuals, tax experts say, is because tax rates are inevitably known to go up in the future. Another Roth advantage is that the maximum annual contribution is $15,000, as opposed to the 401(k) maximum, which caps at $7,000. Thus, most experts believe Roth 401(k)s will have greatest appeal among highly paid workers, or those who expect to be in a higher tax bracket in their retirement years."

Now, if you're a fan of S&P 500 index funds, a report from the mutual fund industry says they all aren't created equally.

"Based on the fact that S&P 500 mutual funds track the same index, it could be assumed that any one of the 65 funds is as good as the other, but a recent study by the Investment Company Institute suggests otherwise.

According to the Washington-based trade group, S&P mutual funds are far from one-size-fits-all. Sure, the funds' underlying holdings are practically identical, but creative variations in asset levels, account size, minimum investment requirements and fees differentiate the funds and can have a significant impact on an investor's total return.

And while it's also true that since S&P funds spend next to nothing on research because they track an index, another cost disparity exists due to the fact that some funds charge 12b-1 fees and others don't. And since index fund buyers tend to be bargain shoppers, the S&P 500's product line, which hold a combined $255 billion in assets, are very popular among the budget conscious. Those with expense ratios of 0.40% are garnering more than 90% of the flows, said Sean Collins, chief economist at the ICI, in a report from the Associated Press."


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