Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

10/31/2006
Should I pay into the Roth IRA or 401(k)?
I am single and 29, and I have two questions. I don't have enough to max out both the Roth IRA and a 401(k), so what is more important? Is it first to just minimally match my employer's 401(k) and then max the Roth IRA, or do I first max out as much as I can contribute to my 401(k) and then put whatever is left into the Roth IRA?
Gail V. Marquet:
expert info »
If your employer offers a match on your 401k, then max that out first to the match percent. That match is free money to you. If they do not offer a match on the 401k, then use the Roth for retirement savings.
Gary Silverman, CFP®:
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You'll get different answers to this as, like most everything in life, "it depends."

Generally, I have a pecking order of places to put retirement savings. The first is anywhere I can get free money. If your employer matches the first X% of your 401k contributions, then strive to put at least that into your 401k. Next, I like stuff that is tax free...and that is the Roth IRA. As long as you keep the money in until age 59-1/2 then all of the gains, no matter how huge, are tax free. From there I want something where the contribution is tax deductible and the gains are tax deferred--which means we are back to the 401k again.

That's my answer, but carefully consider the insight of others. Even better, hire an hour or so of a financial planner's time so that someone can look over you specific situation and make recommendations.
Jeff Kyle:
expert info »
Great question. What I typically advise my clients to do is max out your Roth first because after-tax dollars (with equal interest rates) will always out-perform pre-taxed dollars. Put into your 401(k) up to the amount of the company match. Use the “left over” disposable income to purchase other types of assets. Permanent life Insurance, annuities, real estate a business, etc. This gives you the greatest amount of control over your money & investments!