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Question for the Money Doctors

Question submitted on Jul 18, 2011.


Should I invest in my 401K past employer match or on my own?
I am have just graduated college and have found myself in a good job with my employer matching my 401k contributions up to 3% of my salary of $55,000. I have no debt and very low living expenses and thus intend to save more then what my employer will match.
Prior to college I started a Roth IRA that I have contributed to every year. am I better putting everything into my 401k, or should I put my savings in excess of my employer matching into my Roth?


That’s a great question, and you are way ahead of most people your age by starting to save and invest now.  There is really no perfect answer and the most important aspect is that you are investing for the future.  That being said, I would most likely contribute up to the match in your 401(k) and put other savings into the Roth IRA (up to $5,000).  This is assuming that you only want the investments for retirement.  If you might want the funds before retirement, then you may consider some other type of after-tax investment.  I’ve seen many people contribute to retirement accounts for a few years, then pull out the funds (paying taxes and penalty) because they wanted access to the money.  Also, there are other options than the Roth to receive tax-free income in the future.  Your goals, more than tax treatment, should determine your investment options and amounts.  For example, if you plan on starting a business in a few years, you may want access to your savings prior to retirement.  I hope this helps. 

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