The contribution limits for a 401K in 2006 were $15,000 Note: the 2007 limits were announced, and it is now $15,500. The Roth IRA contribution limit in 2006was $4,000, so the most one person with these resources available to them could put away in retirement-specific accounts was $19,000. So the most Husband and I could have saved last year in retirement accounts was $38,000.
That would be great, but it's really not something we can do right now. Last year's total contributions to retirement accounts was more like $24,000. So if you can't contribute the max to both, who do you put the most money toward?
First off, you have to put enough in a 401K to take advantage of any matching your employer does. So max that out first. What happens next depends on when you want to pay taxes - now or later. It gets personal at this point, because that depends on whether you think you think you may be in a higher tax bracket when you retire. Right now, it looks like we will. So I'm better off shoveling money into our Roth IRAs.
Even if you're not sure, or think your tax bracket may be slightly lower, I think it's still ok to max out a Roth IRA first just because you don't want to take the chance of a crazy democrat raising taxes to obscene levels the year you retire (I don't claim a political party, so I like to make fun of both equally). Peace of mind, you know.
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2 comments:
Great Post. As soon as I hit positive net worth, Im planning on hitting the Roth IRA. I think the 401k would benefit more for someone whose making a lot more money.
Hi Andy,
You should totally celebrate (inexpensively) when you hit zero . . . I know we did. I think you're right about the 401k and rich people - after you hit a yearly income of $150,000 you're ineligible for a Roth IRA anyway . . . so the 401K or a Traditional IRA is all you have left! Though if we ever can, I'd like to max out both . . . thanks for commenting.
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