401k or roth ira? Which will help you retire early?

Public Comments

1. 401k's are the smarter thing to do. You can do both, but max out your 401k contribution before you open any kind of IRA because at least some of that is being met by your employer. It's basically FREE MONEY! Roth's are good for some purposes. My husband uses his as Christmas money, he contributes to it all year and then takes out the basis (just the $$ he put in) for shopping money, but while it's in there it's earning interest.
2. You can participate in an IRA even if you are enrolled in a 401(k) program with your employer. If you can afford it, you should do both. However, you still have to meet the retirement age before you can take money out without a penalty. If you want to retire REALLY early, I would also suggest you invest in stocks outside of a retirement plan, you can sell them at anytime and only have to pay long term capital gains tax (currently 15%).
3. Put enough into your 401(k) to get the maximum Company contribution. Any investment money you have beyond that, put into a Roth IRA. Roth proceeds are tax FREE, not tax deferred like a 401(k). There are income limitations on a Roth, so do it while you still can. One day, we hope, you will be making so much you will be ineligible.
4. Neither will help you retire early. You cannot touch either of them without penalty until 59 and a half years old. If you're earning a lot, max your 401k. If you're earning little, use your 401k to maximize the company match, and throw the rest toward your Roth IRA. New legislation allows for Roth 401k contributions, but the company has to decide whether they move to a plan like that. The only real advantage is that there are no income limits for Roth 401k contributions that exist for Roth IRAs--this only matters when you're earning a bundle.