If you don’t get an employer match, or have already taken full advantage of one and still have additional savings, pay down any high interest debt next. Unpaid interest and finance charges are continuously added to your balance, so the power of compounding works against you, creating a snowball effect. After an employer match, eliminating this debt will provide a great return on your investment.
For any additional savings, think about further funding your tax-advantaged retirement accounts. Whether you add to your employer’s plan or an IRA depends upon what you qualify for and your individual circumstances. If you are eligible to contribute to either, consider funding your IRA first. This gives you the benefits of tax-advantaged growth and a larger menu of inexpensive investment options than most employer plans offer.
If you decide to fund your IRA to the limit, and still have more savings, continue funding your 401(k) up to the maximum allowed. After that, direct any retirement savings into a taxable brokerage account.
There are lots of great ways to save for retirement. Now that you have a sensible plan in place, it’s time to put that plan into action!
John Spoto is the founder of Sentry Financial Planning in Andover and Danvers. For more information, call 978-475-2533 or visit www.sentryfinancialplanning.com.
This article is for general information purposes only and is not intended to provide specific advice on individual financial, tax, or legal matters. Please consult the appropriate professional concerning your specific situation before making any decisions.