11

My employer allows me to contribute a certain percentage of my salary to my 401(k). My employer will also match a certain portion of my percentage. How much should I invest in my 401(k)? Should I invest the maximum or should I invest less and use the money to invest outside of my 401(k)?

Zephyr
  • 6,240
  • 6
  • 38
  • 63
brainimus
  • 976
  • 9
  • 20

3 Answers3

10

A good general rule is to save 15% of your income for retirement. As for where you put it:

  1. Put as much as it takes to maximize your employer match into your 401(k), but no more. The employer match is free money, and you can't beat free money

  2. If you still haven't put in 15%, put the rest into a Roth IRA. By historical standards, taxes are pretty low today. They are almost certainly going to be higher in retirement, especially since you likely won't have the deductions in retirement that you may have now (kids, mortgage, etc).

  3. If you've maxed our the allowed contribution for your Roth and still haven't saved 15%, put the rest in a traditional IRA.

Eric Petroelje
  • 2,842
  • 1
  • 21
  • 19
5

At the very least you should invest as much as you can that your employer will match, as they are basically giving you free money for saving. After that I would prioritize a Roth IRA as that offers similar tax benefits with more liquidity. Provided you have enough money available in your emergency fund and have plenty for everyday expenses I see no reason not to max out your 401k after that if you can afford it. However, if your emergency fund is lacking, be sure to put some there. Other investments like a 529 may come into play if you have kids you plan on sending to college, but it all depends on your situation.

en1gmatic325
  • 459
  • 3
  • 4
3

If you can afford to put money in your 401(k) account, I would say at least you should invest enough to get your employer's matching fund. It's free money, why not get it?

grokus
  • 1,044
  • 8
  • 10