Roth IRA vs 401K

Most employees these days must eventually face the descision between opening and contributing to a Roth IRA, or simply contributing more than what their company matches in their existing 401K plans.

It's a problem as common as any other investment dilliema. What it all comes down to is which is right for you? A Roth IRA vs a 401k? 

Most people think of these two investment vehicles as competing, but perhaps they shouldn't. They both have different traits, naturally, and sometimes those traits can be used together, to compliment each other. 

For instance, it is best to completely fill both your 401K and Roth IRA accounts. The more you can save for retirement, the better. However, most of us only have so much money that we can put into savings, so the question is inevitable; which account should you invest in first?

The simple answer is that it is best to start with your 401K plan. -But only up to the point that your employer matches! 

Now we're getting somewhere. It's about stacking them together in the most benifical order.

After you've filled it up to the amount your employer will match, invest in a Roth IRA.

Keep the 401k plan full and on the 'back burner' for now while all your new savings go into a Roth IRA.

When you have more money to invest after making the maximum contribution to a Roth IRA, you should go back to and work to fill up your 401K plan completely.

Any savings after than could be made in another form of investment, such as Municiple Bonds or even taxable accounts.

So here's the breakdown of your best possible investment strategy:

• Step 1. Start with the 401k plan, fill it up to your Employer's matching limit.
• Step 2. Open an IRA. Fill that up to the maximum contribution level.
• Step 3. Now you can finish filling up the 401k plan, up to it's maximum contribution as well.
• Step 4. Still more savings to be allocated? Look into Municiple Bonds or even taxable investments. 

It doesn't have to be "Roth IRA vs the 401k." Too many people make it sound like they are mortal enemies. In truth, they work together wonderfully to ensure your retirement. - By Stacy Karrol