Company matching 401K vs Roth IRA
Until recently I was maxing out my contribution to my corporate 401K. Recently I only contribute enough to receive the full company match. Based on the initial information I’m reading from Ed Slott would it be better to stop the company matching 401K contribution and just max out Roth IRA contributions annually? It seems there is no sense in creating a larger account to be taxed.
Permalink Submitted by Alan Spross on Fri, 2008-06-20 18:14
Definitely not. The company matching contribution is basically free money and you should contribute at least the amount to get the max company match. Many planners recommend first maxing 401k contributions up to the company match, then funding a Roth IRA contribution if your income permits, and if affordable finally contributing to the 401k unmatched amounts.
If you are not income eligible for a Roth IRA contribution, many plans now offer a Roth option in the 401k. The company match would still apply, except that the company match would go into the pre tax account, and only your own contributions can go into the Roth portion. In this plans, you can split your own contributions between Roth and pre tax in any proportion you choose, but the company match is always pre tax.
Therefore, your overall planning should consider what your 401k offers, whether you are income eligible for a Roth IRA contribution, and how to split it up between pre tax and Roth based on current and projected tax rates.
Permalink Submitted by Ernest Luther on Fri, 2008-06-20 21:02
thank you