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Stephen Gardner is a best-selling author of multiple books. He’s
best known for Taming Wall Street which shows people how to
take back control of their money while safely growing it.
Stephen has been involved in the insurance and retirement planning
industry since 2003. He has helped families save hundreds of thousands
of dollars in fees, helped put millions of dollars of death benefit on
families all over the country and he’s shown people how to get
market like returns without being in the stock market.
Stephen is on a mission to help strengthen America one family
at a time….(read more)
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Saving for retirement is one of the most important financial goals we can have. To achieve this goal, we must start early and plan well. A common question that many people ask when planning for retirement is whether they should max out their 401k or Roth IRA first.
Before diving into which one you should choose, let’s first take a look at what each of these retirement accounts offers:
401k: A 401k is an employer-sponsored retirement savings plan that allows you to contribute pre-tax money from your paycheck. These contributions are tax-deferred, meaning you won’t pay taxes on them until you withdraw them during retirement. Your employer may also match a portion of your contributions up to a certain amount.
Roth IRA: A Roth IRA is an individual retirement account that allows you to contribute after-tax funds. The contributions grow tax-free, and you won’t have to pay taxes on the money when you withdraw it during retirement.
Now that we understand the basics of 401ks and Roth IRAs, let’s explore which one you should max out first.
If your employer offers a 401k plan with a match, experts usually recommend contributing enough to get the full match before maxing out your Roth IRA. Why? You get “free money” from your employer’s contributions through matching. Plus, a 401k offers the potential of growing a lot more money in a shorter time period due to higher contribution limits compared to a Roth IRA.
Once you’ve contributed to your 401k up to your employer’s match, then you should focus on maxing out your Roth IRA. Why? Unlike a 401k, withdrawals from a Roth IRA during retirement will not incur taxes. Additionally, a Roth IRA offers flexibility in choosing investments and fewer restrictions on when you can withdraw funds compared to a 401k.
It’s important to know that the contribution limits for both retirement accounts vary from year-to-year. For 2021, the contribution limit for a 401k is $19,500, and for a Roth IRA is $6,000. People 50 and older can make catch-up contributions, up to $6,500 for a 401k and $1,000 for a Roth IRA.
To sum it up, when deciding whether to max out your 401k or Roth IRA first, it’s important to weigh the benefits of each account and determine which one aligns with your retirement goals. If your employer matches your 401k contributions, start by maxing out that match, then focus on maxing out your Roth IRA. Remember, starting early and consistent contributions to both accounts will help ensure a comfortable retirement.
A 401k invested in a low fee index fund is fantastic. I don't agree with your assertion that 401ks are bad.
Yeah I'll skip the professional. You do realize that professional will cost you money, it's kind of their thing to charge fees. And you complain about 401K fees?
It's a good thing to pay taxes now? I'll bet your standard deduction and retirement, what will you fill that with. You don't believe zero tax is the best
I have Vanguard institutional funds and a brokerage window allowing me to buy any investment. You're insane if you don't think I'm going to take advantage of that plus the tax breaks
Your message of high fees, is a thing of the past for many people
Should I max out my Roth IRA?
https://www.futufan.com/should-i-max-out-my-roth-ira/
Thank you!!
Stephen it's time for an executive order from the president for the $1200 stimulus checks. Let the house and the Senate hash it out later. Help the people now !!!
I really feel they ought to take Nancy Pelosi out of speaker of the house maybe the Democrats will get together and pass the stimulus for the American people instead of fighting like two kids
I don’t think all 401k plans are bad. I have a roth 401k plan with a 4% match, and some of the funds in my account are awesome. Not all of them are but I’m invested in 4 of my best funds and I’m up 28% ytd and 17% for the last year.
What if my 457 plan has Vanguard funds no matching since the company also has a pension. 457 has the same limits as a 401k but there is not age withdrawal limit I just have to terminate my employment to withdraw without penalty regardless of age
Bias opinion…
My company matches 10% of what I put in total per year. Is that still worth contributing?
Mr. Gardner, do you have any suggestions as to what company I should fund a Roth IRA through. I’ve heard terrible things about big bank IRA’s
My company fees are low and average 9% a yr return for last 10yr using fidelity.
Thank you for spreading the message! Great advice! 🙂
Roth IRA all the way the biggest part of the money will be gains at the end and will be tax free money
I've been contributing to my 403b for over twenty years and compounded interest has given my over three times what I paid into the 403b. I'm in my 50s now, and the compounded interest is going to build upon the amount that I have now. Isn't that more than if I should start again?
But i get a 100% match up to 6 % from my company 401k. I would be stupid not to take advantage of that
Your belief is unwarranted. Fees depend on the funds you choose and options depend on the company. For example FUSEX or Fidelity 500 index investor has an expense ration of 0.09% and a year to date return of 20.3%. Now you do the math. Irrespecirve of the employer match, it is prudent to put away some money into 401k to reduce taxes. You can only put in half as much, or less than than in an IRA account plus you cannot borrow from an IRA. Live like a popper now to spend like a king later.
A self directed Roth IRA has many hidden fees: For example.
One-time establishment fee: $50.
First-year annual fee: $75.
Annual renewal for an account holding $100,000 to $249,000: $300
A 401k that is available from the company will have lower fees and the company will always try to save money for its employees. Don't be gullible and fall for someone else's advise. Do your own research before making a decision as big and impactful as this one.
Unless you are a US citizen you cannot hold both a 401k and Roth IRA.
is it good to have both or not
Interesting post! I love hearing other peoples' thoughts and opinions on how the best way is to invest money. I am currently taking/studying for the CPA exam, 1 part completed (REG) and love learning as much as possible. Our market now is definitely pretty wild, especially with the current Cryptocurrency pandemonium and record stock highs. The question is now do we hold cash and wait for a correction or look for stocks and ETFs which are not at record highs. Target was one company I've had under my radar as a solid company down far from it's 52 week high price. Anyway, love he idea of a ROTH and definitely think it is a wise decision to take full advantage of maxing it out if you financially are able to do so.
So don't invest in company 401k because of fees? It's not the fees that are going to ruin it, it's not putting any money in. There will be fees with the Roth as well.
Max out company 401k match, then max out a Roth IRA, then put whatever extra back into company 401k.
great advice
can the author provide information on any one tax bracket on which taxes today are higher than they have been in the past?
i find it absurd that people think that taxes would ever go up in the future. if anything, the US tax code has become increasingly regressive and closer to a flat tax than a progressive tax like the rest of the world.
taking a tax holiday today is certainly the better option because in the long run, your rate of return is unlikely to exceed 4.5-5% net of expenses.
also, your employer sponsored 401k usually gives you immediate access to lower cost ETFs such as Vanguard Admiral ETFs and Blackrock ETFs. investing in them is a safe bet if you have at least 10 years before you retire.
finally, taking a forced savings at the paycheck is one of the best ways to practice home budgeting.