401k versus Roth IRA Contributions

Here's the general prioritization I use when figuring out where I should direct my retirement savings:

1) Contribute to 401k up to company match - in your case this would be ~4%
2) Contribute the remainder to a Roth IRA until you hit the limit
3) Contribute the remainder to a traditional IRA - though I think if you've hit the limit in a Roth you won't be able to contribute to a traditional
4) Any remaining allocated retirement funds should then go back to your 401K (add to the 4% above)

My rational in using IRA's instead of 401k (after you've exhausted the company match) is that you have many more investment options. Also the overall tax advantages of a Roth will most likely be better than the 401k assuming you're ok with less take home right now.

One more advantage of a Roth IRA is that you can withdraw your contributions at any time without penalty - you shouldn't ever plan on doing this but there is significant value in having this option compared to the others.

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One more advantage of a Roth IRA is that you can withdraw your contributions at any time without penalty - you shouldn't ever plan on doing this but there is significant value in having this option compared to the others.

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I don't think this is accurate. There are some instances where you can withdraw funds, though.

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I don't think this is accurate. There are some instances where you can withdraw funds, though.

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I think you're thinking of the penalty for withdrawing earnings.

You can withdraw your contributions at any time but if you choose to withdraw your earnings as well then there's a penalty except for a few exceptions (educations, first time home, etc.)

Much of this depends on tax planning and what the contributions mean to your current tax situation and what it may be in retirement. If you retire and are at a Fed tax rate of 25% a $750K Roth is worth the same as $1M in a traditional 401k/IRA. Having no idea what future tax rates will be it is worth contemplating adding a Roth for tax diversification if no other reason. If you are young the Roth can make a lot of sense, but you could also intend to convert 401k savings into Roth if your retirement tax rates are low. Unless people are highly skilled investors, earn/save at a rate well above average, etc many will retire at a lower tax rate which would allow conversions to the Roth at lower tax rates than when working FT if tax policy remains similar to current policy.

Paying estimated taxes on portfolio/savings earnings sucks, that I can tell you.

How has your 401 been doing?