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Subject:  Re: Hurray For Me!!! (And New Qustions) Date:  5/23/2002  8:44 PM
Author:  brwhiz Number:  34594 of 78167

If your employer matches a part of your 401k, you will want to put enough into the 401k to qualify for ALL the free money.

For a young person, a Roth IRA is a really great choice. So my order of priorities would be:
First, enough into 401k to qualify for all match money
Second, fund a Roth ($3000 this year)
Third, go back to increase 401k to maximum allowed.
Fourth, tax-efficient investments in taxable account.

I would offer much the same advice, provided that you can afford to fund the 401(k) AND the Roth IRA to the point that you can build up your emergency reserve of $2000 in the Roth fairly quickly. Since you only need to contribute $258 for the employer match, this should be a cinch.

In fourth place, I would recommend a traditional non-deductible IRA. You are allowed to put the same amount of after-tax contribution into this type of IRA as you can into a Roth. And your contributions (but not any yields) to BOTH types of account are retrievable, in case of an emergency, without any penalties. The EARNINGS on the traditional IRA are like your 401(k); you aren't taxed until you take a distribution against earnings. So after retirement, you first withdraw against your contributions until you have withdrawn an amount equal to your TOTAL contributions, THEN you pay taxes on any subsequent withdrawals at whatever your marginal tax rate is at THAT point.

You have until April 15, 2003 to fully fund the $3000 into each of the IRA's (later, if you file for extensions on filing your return - up to October 15, 2003).

So this year you can contribute $11,0