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401k or IRA? Traditional or Roth?

Plain and simple:

If your company offers a 401k with a match, take it! It's free money! Otherwise, setup an IRA (Roth or Traditional) with the brokerage of your choice and max out the contributions each year. If you still have money to invest after your have maxed out the IRA, start putting money in the 401k.

If you have a spouse, open an IRA in their name and max out the contributions each year if you have the funds.

What are the maximum contributions for an IRA?

The annual contribution limit for 2020 is $6,000, or $7,000 if you’re age 50 or older (same as 2019 limit).

Your total contributions to both your IRA and your spouse’s IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income.

Are there 401k contribution limits?

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 $19,000 to $19,500.

Traditional or Roth?

The general wisdom is if you are going to be in a lower tax bracket when you are older, use a Traditional IRA so you are taxed later at the lower rate.

More to come...


This site contains accounts of my experiences and opinions, and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

I wrote this myself, and it expresses my own opinions. I am not receiving compensation for it. I am not an investment adviser. I may sell any of the stocks or funds named here without notice at any time.