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My wife and I have recently received or read several recommendations that we reduce our 401(k) contribution and fund Roth IRAs.

From a wealth accumulation point of view, is this Wise? Or Foolish?


Max out both.

I started off with a one-time $2000 contribution this year. I assumed I'd pay 28% tax on the money going into the Roth, so I subtracted that off the top and invested the balance ($1,440, I think) into the Roth in column A. In column B I stuck the whole $2000 into my 401(k).

When you run the figures like this, the only difference is in your tax rate at retirement. The reason must calculations show the Roth as better than the regular IRA, is that you effectively get to invest more in a Roth. In this sense you can't really equate the regular IRA to a 401(k), since the latter allows you to invest a lot more.

I started to type an explanation, but I can't explain it as clearly as Kat has done, so I'll simply provide a link to his web site: http://www.fairmark.com/rothira/index.htm
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