Today I stumbled upon this articleover at CNN Money by Walter Updegrave. He answers a readers question about the choice between a Roth IRA and a 401(K):

“I’m 25 and recently switched employers. Although my new company provides a lucrative profit-sharing plan that everyone is automatically enrolled in after one year of work, my new employer does not offer a match in the 401(k). I can budget approximately 20 percent of my income for retirement savings, but I’m confused about how to allocate those savings. Should I max out my Roth IRA and then put what’s left in the 401(k)? Should I put 10 percent of income in each? Or is there something else I should be thinking about?”

Personally, I have a 401(k) match, and so I start there, and get the match. After that, I usually continue contributing to my 401(K). I love not paying taxes NOW on that money. Who knows what will happen in the future…if I know I can avoid a tax now, then I feel obligated to do it. I think I’ll be considering the Roth once I begin maxing out my 401(k) contributions, which is one of my goals for next year.

Update 2010: Hey, I’m happy to report that I actually achieved both for tax year 2008. I maxed out my 401k and I was able to open up a Roth IRA for both Mrs. PT and I. I actually opened up the Roth IRA in 2009, but my contributions I had designated towards 2008. 

The max in 2008 for 401k was $16,000, I think, and $5000 for the Roth IRAs. So you can see we worked hard to be able to save this money. All the funds will be used for retirement. Although, now with the Roth IRA, I have a little more flexibility with what I do with those funds. You see, the Roth IRA uses after-tax dollars, so they aren’t locked in till retirement like funds in a 401k, which are pre-tax dollars.

The question of whether to go with a Roth IRA vs 401k is a very personal one, and it depends heavily on your own situation. There is no rule of thumb. To help you answer this question a bit more, see the Roth IRA Rules and this article on the 401K and Company Match.

Related posts:

1. The End of the 401K Match and Random Thoughts on the 401k vs a Roth IRA
2. Opening a Roth IRA for the First Time
3. Roth IRA: A 2008 Goal You Still Have 4 Months to Achieve
4. Roth IRA Rules
5. 10 Reasons to Get Off Your Butt and Start a Roth IRA