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Jun 7, 2008 4:36 pm US/Pacific

When To Invest In Roth IRA, 401(k)?

QUESTION: My company has 401(k) matching up to 5%. If I want to save more than that for retirement, should I put it in my 401(k) or put it in a different account, like an IRA?

ANSWER: Part of this answer depends upon the tax bracket you are in currently. If you are in a lower tax bracket, I would suggest you contribute the necessary percentage to receive your company match. With additional savings, I would fully fund a Roth IRA. You will not receive a current tax deduction for the Roth IRA, but your contributions grow tax deferred and can be taken out tax free upon retirement. If you are in a higher tax bracket, and have the expectation of being in a lower tax bracket in retirement, I would fully fund your 401(k) to the maximum amount allowable, and then fund a Roth IRA if you have additional savings to contribute.
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Money Matters is provided by:

David Schauer, CFA, MSFA, CFP®
Financial Planner
Hanson McClain
E-mail questions to moneymatters@kovr.com


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