401(k) vs. Roth IRA: Strategic Contribution Balancing for Retirement

If you contribute to a 401k, Roth IRA or other retirement account, you are making a good investment for the future. However, if you have both a 401k and a Roth IRA, you will need to know how to balance your contributions to each. Here are a few things to consider about how to effectively balance 401k and Roth IRA contributions.

Matching Contributions

One thing that you will definitely have to consider is how much your employer contributes into your 401k account. Employer contributions are one of the major advantages of this type of account, and you do not want to negate this advantage. In most cases, an employer will match your contribution up to a certain percentage. For example, your employer might decide to match 50 percent of your contributions for up to 8 percent of your salary. In that case, if you were going to be contributing to a retirement account, you would want to make sure that you put at least 8 percent into your 401k. Otherwise, you would be leaving free retirement money on the table.

Tax Bracket

Something else that you will want to consider is your tax bracket situation. If you are in a low tax bracket now and plan to be in a higher one later, contributing more money to the Roth IRA would make sense.