That's true for many folks who are saving for retirement, but you'll
want to decide in light of your specific situation and needs. Consider factors
like these: 1) If
your 401(k) plan has an employer match, then you'll want to make sure you
contribute at least enough to leverage the full match. That's "free
money" to you. 2) If
you're in a high income tax bracket and it's likely you'll be in a lower tax
bracket in retirement, consider maxing-out tax-deductible 401(k) contributions.
For 2015, that's $18,000 of earned income, plus an additional $6,000 if you're
age 50+. 3) If
you're in one of the lower income tax brackets and it's likely you will be in a
similar or higher bracket in retirement, consider maxing-out Roth 401(k)
contributions. (For folks at lower income levels, this may not be possible cash
flow wise.) Roth 401(k) contributions are not tax-deductible but help you build
future tax-free resources for retirement. If your employer does not offer a
Roth component in the 401(k), talk with HR or the plan administrator about
getting it added. 4) Depending on your income and tax situation, you can instead work out an optimum
combination of tax-deductible and Roth 401(k) contributions. 5) If
you've already maxed-out your retirement contributions—or you have some
longer-term goal where you’ll need to eventually tap the funds outside of a
retirement account—then consider contributing to a regular investment account. All this assumes that you already have a sufficient cash reserve or unused Home Equity Line of Credit that you could tap in the event of emergency. Ideally, you’ll want to arrive on retirement’s doorstep with a good mix
of tax-deferred (401(k)/IRA), already-taxed (regular investment), and tax-free
(Roth) resources so you can draw out your funds in a way that triggers the
smallest tax bite and has the least tax impact on your Social Security.
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