If I'm already investing up to the max employer match in my 401(k), what is my next best investment option?

Question

I'm young and looking to both save for retirement and other future needs (e.g. house purchase). I'm already contributing up to the max 401(k) employer match, but there's plenty of room to invest more there. At this point I'm considering opening up an IRA (either Roth or Traditional), and wondering whether it'd be better to put the money into the 401(k) or one of the IRAs (or maybe even an entirely different investment).

Thank you

Answer 1

I would fund an IRA. You can only put $4000 in either IRA this year (I think). Do research to see which IRA would be better in your situation. If you plan to be a multimillionaire when you retire, I would go with the Roth because you pay taxes up front and don't have to worry about them later when your income is higher. If you think your income will be lower when you retire than it is now, go with a traditional IRA so you pay less taxes later. Then fund the rest of your 401K. I say go for the IRA before the non-matched portion of your 401K because up to $10,000 of an IRA can be withdrawn without tax penalties for a down payment on a house or can be used to pay for higher education.

Something important someone else mentioned is that you can get your money out of a Roth IRA penalty free before you retire. This is for the amount you put in, not including the interest. In a traditional or 401k any money withdrawn is subject to tax and a penalty if not used as directed by law.

Also consider mutual funds from a source like fidelity. You could build up funds for a down payment on a house or a duplex. A duplex could be an investment that you could live in while someone else helps pay off your mortgage. Research that option first, though, to make sure you know all the tax advantages and your up to managing or letting someone else manage the property.


Good luck

Answer 2

Depends on what you need the money for. If you want to save for a down on a house, don't put the money in a 401 or an Ira first. There are penalties for taking it out, plus the taxes. If you want to save money outside of an IRA or a 401, open an account at a brokerage such as Schwab and start out buying mutual funds.

If you want tax sheltered, increase the 401k or a Roth IRA.

Answer 3

By far a Roth Ira.

You know why?
You would be putting in your taxed dollars to be taken out at a further time - most likely your retirement. Which at that time you will be able to take the money out tax free when taxes will be much higher than now(considering you are young).
Also you will not have a penalty for withdrawing the money before retirement if you choose. With a traditional IRA you would have penalty same as a 401k.

Answer 4

I got the best return on my money playing the stock market. I know its a little risky and volitile right now but thats how you can get a good downpayment for a house quickly. With good advice you can double your investment in a few years.

Answer 5

maybe get a CD or money market account