This is an excellent question: which to max out first, a 401k or a Roth IRA?

The easy answer, max out both the 401K and the Roth IRA! You can’t go wrong saving and investing as much as you possibly can now.

What if I can’t max out both my Roth IRA and 401K?

In the real world we all need to make financial choices. Most investors can’t afford to max out their 401k and their IRA. So, how to allocate retirement funds is a common question.

Here are the contribution limits for 2018:

401k Contribution Limits – 2018

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500, according to the IRS. Those over age 50 can contribute an additional $6,000.

Roth IRA Contribution Limits -2018

Anyone can contribute $5,500 to a Roth IRA if they meet certain income guidelines. And if you’re over age 50, you can contribute $6,500.

Higher income earners may not be able to participate in a Roth IRA.

The income phase-out range for taxpayers making contributions to a Roth IRA is $120,000 to $135,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is $189,000 to $199,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000 according to

Which to max out First – 401k or Roth IRA?

First, if your company matches your 401k investment, make sure to contribute enough to get the employer match.

After you receive the free employer money, then the decision whether to go with the Roth or 401k depends on several factors.

The Pros and Cons of a 401k vs. a Roth IRA Retirement Account

An advantage of the 401k over a Roth IRA is that your contributions are tax deferred which means your taxable income is reduced by every dollar that’s paid into the 401k. So, if you make $70,000 and contribute $10,000 to your 401k then you’re only taxed on $60,000 income (for Federal taxes- state policies vary). 

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