401k or Roth IRA

Traditional wisdom is that you should max out your 401k before contributing to anything else. That depends on whether you believe taxes will go up or down in the future. In a 401k or traditional IRA, the contributions go in tax free (are deducted from your income) but come out and are taxed at whatever rate you are then subject to. In a Roth IRA, contributions are taxed at your normal rate, but withdrawals are tax free. The arguments for tax free contributions are (1) you're probably at a higher rate now than you will be after retirement; and (2) you'll be paying with future dollars that will likely be devalued due to inflation.

But think of this. Suppose you contribute $150,000 over your lifetime, $500 a month for 25 years. That $150,000 is deductible from your income taxes. When you retire, that $150,000 may have grown to $500,000 or more, depending on the success of your investments. Now instead of taxing only the $150,000 you contributed, Uncle Sam will collect taxes on the full $500,000. And you can't do anything about how much you withdraw, because the tax code requires certain minimum withdrawals beginning at age 70-1/2, regardless of how much you actually need.

Contributing to a 401k still makes sense in order to get your employer's match, assuming your employer still matches contributions. A match doubles your money up to the amount of the match. So be sure to contribute enough to get the full matching employer contribution. Beyond that, it might make sense to contribute the rest to a Roth IRA if you think taxes will go up in the future.

The King's Estate

Now that Michael Jackson's funeral is over, speculation is rising over what kind of estate he left and who will get it. Both questions may take years to answer.

A figure widely bandied about is that the King of Pop owed upwards of $400 million at the time of his death. Add to that estate and inheritance taxes that will likely be due, and there might not be much left for his heirs, whoever they may be. On the other hand, he supposedly had some lucrative interests in record labels that could spin off money for years to come. One thing is certain: There will be litigation that could last for years. Jimi Hendrix, who died in 1970, left an estate that was in court for 35 years.

There was an interesting post on www.taxgirl.com asking the question whether Michael Jackson's funeral expenses are deductible to his estate. Rather than answer the question outright, the Taxgirl referred readers to another estate planning blog by David Shulman, a Florida attorney www.sofloridaestateplanning.com. Mr. Shulman's answer, in a nutshell, is "maybe".

America Leads the World in Bankruptcies

In 2005, Congress revamped the Bankruptcy Code, the most significant overhaul in nearly 30 years, since the last big revision in 1979. One of the main purposes was to make filing more difficult. The number of filings dropped dramatically -- for two years. By 2007, Americans were filing at a rate nearly twice as great as that in Great Britain, the United States' closest competitor among industrialized nations.

America's public attitude toward bankruptcy, especially in this economic environment, is not as lenient as its laws, however. Most people still resent the fact that some debtors, most of whom were just plain irresponsible by taking on more debt than they could handle, get a free walk. "It isn't fair," people claim. And it isn't. But by the time people have reached the stage of bankruptcy, the time for fairness is past. Bankruptcy is a recognition that a company's or an individual's controls and ability to manage its affairs are beyond repair. Our system sets aside notions of fairness in these extreme circumstances for the benefit of all of us, by attempting to minimze the costs and maximize the potential recovery.