Which Comes First, the 401(k) or the Roth IRA?

Editors' pick: Originally published Oct. 12.

It's a perennial question: Should I max out my 401(k) or my Roth IRA first? To make the choice, you need to think through where you should be saving money along with the advantages and disadvantages of each decision.

Most advisors will start in with some rhetoric about where you believe taxes will be in the future. While you should include taxes in your decision-making process, don't allow taxes to carry more weight than they should, because ultimately there is no way around paying them.

401(k)s are designed to give the tax advantage up front while Roth IRA's are designed to get the tax advantage on the back end. Both have their place as savings vehicle. One should also not discount a traditional IRA with tax advantages up front, because they give you more investment options, less in fees typically and aren't tied to an employer.

Let's start with the 401(k). If you are not getting a match on your money, then stay away from a 401(k) all together. They typically have few investment options, higher fees, and limitations by tying your contributions to your employment. Plus, to keep what your employer matches, most have a vesting schedule for how long you must stay employed. Know this number, because if you aren't staying 5 years and they require 5 years, the match is a lot lower and may not be worth it. A 401(k) only makes sense for the higher ability to save tax-deferred now and the employer match.

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