12-06-2014, 09:00 PM
Generally I would recommend that if you aren't getting any company match and your choices for the 401k are limited you are better off going with a ROTH until you have those contribution maxed out and then put your remaining investments into the 401k.
Another consideration is if you are planning on going exclusively the DGI route for your retirement income, holding the funds in a cash account could save you taxes as qualified dividends are taxed at a much lower rate:
Meanwhile, 401k withdrawals are all taxed as ordinary income and subject to required minimum distributions down the road and you also pay penalties if you need the funds before you turn 59 1/2. You didn't say how old you are in your original post, but if you plan on retiring before age 59 you may be better off going the cash account route.
Another consideration is if you are planning on going exclusively the DGI route for your retirement income, holding the funds in a cash account could save you taxes as qualified dividends are taxed at a much lower rate:
- Tax-free for those in the 10% and 15% brackets to the extent qualified dividend income remains within those brackets
- Taxed at a 15% rate for those in the 25% up to 35% tax brackets
- Taxed at a 20% rate for higher income taxpayers whose income surpasses the 35% tax bracket
Meanwhile, 401k withdrawals are all taxed as ordinary income and subject to required minimum distributions down the road and you also pay penalties if you need the funds before you turn 59 1/2. You didn't say how old you are in your original post, but if you plan on retiring before age 59 you may be better off going the cash account route.