As you’ve read in other posts, I’ve talked about the importance of a 401(k) as well as a Roth IRA. Many clients have asked which one do I do over the other. A basic rule of thumb is if you do have a 401(k) that does have a match, take that first. The reason being is that that is free money and there’s no reason to pass up free money. Most 401(k)’s only match up to a certain percentage, so at least contribute as much as they match.
After the free money, Go for the tax-free money
If you have satisfied that and you still have more money to save, then let’s shift gears and let’s take a look at the Roth IRA. With the Roth IRA, you are allowed to put in up to $5,000 a year, $6,000 if you’re over the age of 50. Our goal then is to max out the Roth IRA after taking full advantage of the free match in the 401k retirement plan. Once the Roth is completely maxed out, then we come back to the 401(k) before we max that out, which is $15,500 per year up to $20,500 after over the age of 50. [Read more…]