401k & IRA?

Question

My job offers matching to 4% but I have 10% going into it.
Should I just keep the matching 4% going into my 401k and then put the rest (6%) into an IRA?

I know We get a tax break if we put money into a IRA but not a R-IRA because there will be not tax on the Roth on the back end but
Do we get a tax break on the money we put into our 401k?

Answer 1

You get the same tax break on a 401(k) that you get on a traditional IRA. And a 401(k) typically has higher contribution limits than an IRA. There's really no benefit to splitting your contributions between an IRA and a 401(k) UNLESS you contribute to a Roth IRA.

As you already know, the tax benefit of a Roth is on the back end. If you are young you will be far ahead at retirement time with a Roth. If you are nearing retirement age a traditional IRA may be a better bet.

You should always contribute at least enough to a 401(k) to get the full employer match. That is FREE money to you and you should never pass it up. If I were in your shoes (actually, I'm in about the exact same situation) I'd do the 4% to the 401(k) and the remaining amounts to a Roth IRA as long as your income is within the limits to contribute to a Roth while covered by an employer plan.

Answer 2

Boston has it exactly right....but, personally, I'd split the ROTH/pre-tax 40/60. Only because I'm a little older (early 40's) and the ROTH benefit isn't as great for me. If you're younger then swing it the other way and do the 60/40.


Be careful where you put your ROTH money. Avoid the high expense ratios/trading expenses.

And you only get the tax break on a traditional IRA if your income falls within the limits...otherwise it becomes a non-deductible IRA contribution. In that instance you're better off with the 401k.

Answer 3

Yes you get the same break on a 401K. On the 401K the money comes out of your paycheck pretax so it's already subtracted from your W-2 - if you put it into a traditional IRA, then you subtract it on your tax return. But either way works out the same.

Answer 4

everything you put into 401k is pre tax - depending on your total income, you may be limited to what you can put into an IRA - you're probably better off keeping 10% in 401k