conversation: User (Velocitron): "I've been contributing 10% of my pay to a Roth IRA, but my employer just setup a 401k with a 4% match. Obviously, I want to take advantage of the employer match, and I have to contribute 5% of my pay to get said match. \n\nMy question, most honorable PF gurus, is wether I should contribute 10% to IRA as well as 5% to 401k OR contribute 10% to 401k and reduce my IRA contributions to 5%?\n\nUltimately, I'm increasing my total contributions to 15%, but am unsure how I should allocate the money."
  Self: "I believe it's generally agreed that when saving for retirement you should invest in the following order:\n\n1) Meet company 401(k) match  \n2) Max out your Roth IRA (5k or 6k if you're 50 or older)  \n3) Put the rest into 401(k)  \n4) If you manage to have money left over, put it into non tax-advantaged accounts"
  SingleMaltSkeptic (SingleMaltSkeptic): "This is the answer you are looking for. Jahlapenoez's comment also gives excellent information. Assuming you still have a ways to go before you are at your maximum lifetime earning potential (i.e., you are not earning the highest salary you anticipate earning in your career, nor are you within 20-30% of reaching that salary), then the list above is a good rule of thumb. If, however, you are already earning close to what you believe will be your peak salary, then you may want to switch 2 and 3, since your tax bracket will likely decrease once you retire, rather than increase (the situation wherein a Roth is useful)."
  davvolun (davvolun): "Here's what I don't understand, why would you switch (2) and (3). Specifically, wouldn't you want to do this instead (under the assumptions you mentioned):\n\n1) Meet company 401(k) match\n\n2) Max out *traditional* IRA\n\n3) Put the rest into 401(k)\n\n4) ...\n\nMy understanding on this is that an IRA is more flexible and potentially more profitable than a 401(k), so if your company didn't match, you would start out with whatever appropriate type of IRA, then switch to 401(k). Additionally, since some places offer a Roth 401(k), another order could be:\n\n1) Meet company Roth 401(k) match\n\n2) Roth IRA\n\n3) Back to 401(k)\n\n4) ...\n\n(My company doesn't offer a Roth 401(k), so I don't really know the ins-and-outs of that though.)"
  v1nny (v1nny): "Traditional IRAs are usually not recommended because by the time people have enough income (i.e. are in a high tax bracket) for them to make sense over a Roth IRA, they usually have too much income to qualify for them."
  SingleMaltSkeptic (SingleMaltSkeptic): "I mean, there's a pretty basic logic to this right? \n\nIf you're offered a match (free money) on *any* type of investment vehicle, you should max the match out first (obviously not if its associated with some scam or shady situation--just a straightforward employer or whoever else match).\n\nAfter that, you take stock of your current life and financial situation. If you are making significantly less than you anticipate you will make at the peak of your career, the logical step is to max out a Roth IRA, since the taxes you pay on it now will be less than those you anticipate paying during retirement. If you're already at or near the top of your earning potential, max out a traditional IRA, because the taxes you'll pay during retirement will be lower or the same as those you're paying right now.\n\nAt this point, let's say you've put away $17,000 for the year--$5,000 IRA + $6,000 401k + $6,000 employer 401k match (I'm grabbing these numbers out of thin air). If your retirement strategy says you should be saving more than $17k/year to get to your savings goals by retirement, then you want to go ahead and invest in the only tax-advantaged savings vehicle still open to you: your 401k (your IRA is maxed, but you've only contributed $6,000 of the $17,000 annual contribution limit to your 401k).\n\nOnce you max out both your 401k and your IRA, then your only option is non-tax advantaged savings vehicles, unless you want to save for something specific like education, in which case you can use a 529 plan.\n\nEDIT: I see, I made a mistake in my first post. Instead of switching two and three you would rather invest in a traditional instead of Roth IRA, since they typically seem to have better investment flexibility than 401ks."
  