30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Chapter 9. Decide Where to Invest for Retirement

"My company just cut our 401(k) match. Should I continue to invest in the plan, or am I better off starting a Roth IRA?"

Shannon, a graphic designer in her mid-twenties, wasn't the only one who wrote me with that question in 2009. Amid the economic downturn, many companies cut employee benefits instead of—or in some cases in addition to—eliminating jobs. That left employees like Shannon in a quandary.

Chapter 8 covered the decision about whether to pay off debt or invest. But assuming that your debt is under control and you've decided to invest for retirement, your next step is to look for the vehicle with the greatest bang for your buck, just as Shannon was doing. Should funding your 401(k) be your top priority, given that your money goes in on a pretax basis and you may earn a match? How do Roth or traditional IRAs fit into the picture? Or perhaps it makes sense to simply save in your taxable account so you can readily put your hands on the money if you need it.

Thinking through your best options can be tricky. Just how good is the tax break you're earning by investing in a company retirement plan or IRA? Your tax brackets—the one you're in now and the one you will be in at the time you expect to retire—are one factor to consider when prioritizing the various tax-advantaged investment vehicles: Is it better to pay tax now or later? (And, unless you're very near retirement, it can be difficult to guesstimate what your in-retirement ...