Simpleman

I'm under 30, which of the above two would be better choice. My company matches up to 12k a year.

Dom418

Two questions....

1.) 12k is a HUGE match are you sure that's what they match??

2.) Do they match for both a ROTH IRA and 401K?? I haven't heard of too many companies matching and IRA contritbution. (be definition - Individual retirement account - it has nothing to do with your company)

mantis23

Why not both?

Dom418

Well, there is one huge advantage to the ROTH vs. a 401k....

Also, you're only to contribute a certian dollar amount to each one. I believe the Roth is $3500 and the 401k is $12000, so that could come into play depending on how much you want to save

Scrib

12K???

Like Dom said, are you sure???


The general rule of thumb is to max out your 401K and then do an IRA (Roth or traditional) if you can. Dom, and I correct?

Swing both if you can. Obviously, that' your best move. But I'd stick with a 401K if I had to choose.

Dom418

I have a feeling the $12k is the max he's allowed to contribute, not the amount the firm will match. It would be quite a coincidence if those two numbers end up being the same.

My firm matches $2500, which I've is pretty decent, I can't imagine other firms matching almost 6X as much, but hey, if they do, all the better!!




SCRIB - that's a good rule of thumb.. the way I tend to look at is to max out on whatever the employer will match for sure (free money & 100% return), and then consider the IRA.

The reason for this is that in an IRA you can generally invest in any secruity you chose to. In a 401k, you can invest in the securities the plan provides. For example, our firm using Vanguard for the 401k, and I'm only allowed to invest in the 18 vanguard funds that our firm has chosen as part of our plans, where as in a IRA, I could buy any stock I want.

95gt

As everyone seems to state. 99% of companies will NOT match an IRA but do match a 401k. I would reccomend find out how much the company matches (most match %'s, many will do dollar for dollar on first 3% and 50 cents on the dollar for the next 2%). Put in 5% of your salary because, with the match, you are making a huge return on investment. Than put any extra money you want to save into an IRA as you will have a lot more choices in what you would like to invest in.

My .02

stejus

I'd split it up into two contributions (both 401K and Roth) if you can.

401K's have a huge tax advantage upfront. They lower your AGI (Adjusted Gross Income) come next years tax return. Find out the exact match in your 401K plan and make sure you contribute enough to benefit from the max match. This means if your company matches .50 on the first 6% of your pay, make sure you contribute at least 6% of your pay. I've never seen a 12% match, but if they do, contribute as much as need to get that full 12% match.

Roth's have a huge advantage later in life. Any money you contribute today will not be taxed when you take it out later (retirement age), unlike your 401K.

Strategy, at your age, you should be investing at least 15% of your income. I suggest you invest as much as it takes to get a full match in your 401K. Invest the remaining (post tax money, max $3500 this year) in a Roth. If there's any remaining money you want to invest, put it in that 401K (up to $12000 this year I think).

Goodluck

Eggplant-EX

I have done well with my 401K but my IRA sucked big time. Put in $4k in my IRA and it is now worth about $3.4K

My vote is 401K

mantis23

&



In addition, you won't receive credits on your Tax return when investing in a ROTH IRA, however, you will receive credits on your tax return if you contribute to a traditional IRA.

There is cutoff contribution amount for receiving max credits on your tax return on the traditional IRA, but I think its less than half the max contribution amount (which I believe is $3000.00).

The only problem with the traditional IRA is you are heavily taxed and penalized should you need to withdraw early, but if you spilt your contributions between ROTH & Traditional IRAs, you can reap the benefits of both. You would compromise is having less money in your ROTH account to draw from at a tax free rate, but you would reap benefits from having tax credits on your tax return by contributing to the traditional IRA up to the cutoff contribution amount.

This is how it was explained to me, correct me if I'm wrong.

Contributing the max on the Traditional IRA doubled my tax return this year.

95gt

Hey don't blame your poor choices in the IRA

LegendC

I'm a big fan of the Roth, plus its easy to take money out for a house, home improvement, or higher education.

GreenMonster

Like the other guys have said, do both. I've got a Roth IRA and a 401K plan at work. I've had the IRA for years, but my company just started the 401K last year. I need to increase my percentage on the 401K tho'.

I thought the IRA contribution was $3000 for 2004, and $4000 for 205-2007, and $5000 for 2008. From 2009 on it goes up by $500 a year.

The 3500 figure is for peeps over 50 who are on the "catch up" plan. The "catch up" increases from 500 extra to 1000 extra in 2006.

Scrib

Again though... If you can only do ONE, do the 401K.

You're much better off, since the money going in is pre-tax. And if your employer does match, it's even better.

It'd be an interesting exercise to run a Roth IRA vs. 401K calculation and see which one would be better tax wise.

My gut says, even though you're taxed on the 401K coming out, you're still better off. Why???

If you're working currently, you're in a 25%, 27%, 30% or even 33% tax bracket. 401K money goes in PRIOR to tax deductions. So right there, you're up, say 27% each and every time. Not to mention, this lowers your AGI.

Now, most when pulling for a 401K are retired at around 60 years of age. Retired, means NO INCOME. Therefore, your taxable rate goes down to 15%.

Roth money is POST-tax, so you're getting hit with say 27% before it goes in.

So even though it may come out tax-free, you still had to pay a much higer tax rate to get it in. Versus the 15% to get it out of a 401K.

Just my thoughts...

MikeyB_TLS

there is a lot that goes into this consideration, namely, if you make 100k taxable in a given year, you can't contribute... that is BIG... b/c the premise of ROTH requires ALOT of money... if all things are equal, roth grows at a slightly higher rate IF YOUR rate remains the when you can pull the money out....

It is very complex, again, as i have said before in my posts, if people care to hear my .02 I'll elaborate, just ask