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As Seen in US News and World Report: How to Prioritize IRA and 401(k) Accounts

Where you save for retirement is as important as how much you save.
DEATH AND TAXES ARE THE only two certainties in life. While one is unavoidable, taxes can be minimized with strategic planning.

For investors, that means utilizing tax-advantaged accounts, including 401(k)s and individual retirement accounts, to the fullest. John Vento, president of Comprehensive Wealth Management in Staten Island, says the higher contribution limits and the potential for employer matching contributions are the main draws of 401(k) plans.

“Saving for retirement through your 401(k) is like putting your retirement plan on autopilot,” Vento says. “The added benefit of saving through your paycheck is that you’re taking advantage of dollar-cost averaging with your investments over time.”

The automatic nature of 401(k)s also encourages self-control.

“Human behavior loves the path of least resistance when it comes to money matters, savings in particular,” says J. Timothy Corle, president and CEO of Tycor Benefit Administrators in Berwyn, Pennsylvania. He says having retirement contributions deducted from your paycheck automatically instills the discipline to save over the long-term.

But, there are some scenarios where placing contributions in a traditional or Roth IRA ahead of your 401(k) could make sense. If you’re able to save in multiple tax-advantaged accounts, getting the order of operations right matters.

Check the match. Whether your 401(k) should be your go-to savings choice depends largely on if the plan offers a matching contribution.

“If the employer plan does not offer a match, then an IRA is a much better place to start,” says Brad Clark, president of Solomon Financial in Indianapolis.

Clark says if you’re thinking of maxing an IRA before your employer’s plan to weigh the benefits of Roth versus traditional IRAs. Read More