Question

Now that you have a full time job you are ready to start investing for retirement. Your corporation will match 50 cents of each dollar that you put in your 401K account up to the first $7,000. You have altogether $15,000 that you can afford to save this year. How should you split your money between your 401k account and IRA accounts? Which type of IRA account probably makes the most sense at your age? (age is 21) Explain your decisions.

Answer 1

Answer on Question #37913 – Economics – Finance

Divide your 15000 this way:

7000 to your 401K, because you get another 3500 contributed by the company.

5500 to a Roth IRA, the legal maximum for 2013, because your future investment withdrawals are tax-free. (Assuming your total gross income is less than 188,000 limit to utilize Roth IRA)

Since no another savings alternative is in the problem, put the remaining 2500 into the 401K, even though there is no matching contribution.