Prioritizing Between 401(k) and Roth IRA Contributions
Last year was the first year we were eligible for contributing to a Roth IRA. I had the luxury prior to that of saying to myself "ha! I don't have to even think about that, I don't qualify to contribute! It's just 401k and usual IRA for me!".Well then when we did become eligible to contribute to a Roth IRA, I stared at it like it was a backyard critter that I had no idea what to do with.
How does it fit in to the retirement strategy? How do I even figure that out? What exactly is the benefit again?
Then I would say, well, in 2007 I will tackle it.
Hi, it's 2007 now!
So I figured it out last week: Aha! OK, what we will do is start it after the tax season (April).
Keep the 401k contribution at same level, and start by putting 1% into a Roth and go up from there.
Since hubs' employer has a Roth 401(k)option in addition to 401(k) option I thought this would be a great strategy.
Then I found this Yahoo Finance article today, and it really helped alot!
It might help you too if you are befuddled about why exactly you should be contributing to both and how exactly to prioritize between the 2.
I feel much better having a plan around this now, as I spent 2006 trying to wrap my head around it and understand how to approach this.
posted by finance girl @ 8:44 AM
3 Comments:
I think 401k should always be first. Because of the matching and you also can contribute much more in a 401k than an IRA which have a limit.
Hey there MM yeah that's what I got out of the article (first contribute to 401k to company match, then max out Roth, then go back and max out 401k).
just started reading your blog and I like it - helps motivate me.
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