Roth IRA vs add to 401K

[hz80408]

A while ago I posted our budget on here and the general consensus was that we/I need to contribute more to retirement.

We're 26; trying to save to buy a condo (or home if we move) that would most likely be around $400K. We have about $40K in savings for that currently.

I currently have a 401K. I put in 8%. My company matches 25% up to 5.5% of my contribution.. After bills, food, SL payment ($100/mo), etc, I have about $1300/mo left. I save $900/mo and give myself $400/mo for lunch, shopping, gifts, etc.

That's the background. I'm debating if I put more in my 401K or start up a (Roth?) IRA with Vangaurd. They require a $3K start up. I currently have $6,500 in my "misc"/lump savings. (My savings is low due to a lot of travel this year). Should I cut my current savings in half to start up the IRA, knowing that I have the means to replenish it? Or is simply increasing 401K % a better option?

Is Roth the way to go or traditional? Does it matter that H already has a Roth?

Sorry for all of the questions. Let me know if you need additional info.

[Deleted]

I think a lot of people say to contribute to the 401K to get the max match (free money!), max the Roth IRA while you are eligible (5K per year) and then go back to the 401K if you have extra. If your company matches 25% up to 5.5%, does that mean you need to contribute 22% to get 5.5%? That seems like a lot to me. I would probably increase the 401K as much as you feel comfortable...maybe 10-12% next year.

[SJ]

I would open & max a Roth IRA for yourself.

Since you are already putting enough in your 401K to get the whole match, I wouldn't worry about that right now.

[aspentosh]

Dec 6, 2012 11:26:34 GMT -5 SJ said:

I would open & max a Roth IRA for yourself.

Since you are already putting enough in your 401K to get the whole match, I wouldn't worry about that right now.

Sarahjoy is wise.

[hz80408]

Thanks. Would you decrease the 401K to meet the company match (just put 5.5% in there)and put more in Roth?

Missy, not quite. The way I understand it is, say I make $100K, which I don't, since I put in 8%, let's say I put in $8K. Employer would put in 25% of up to 5.5% of my contribution/salary (in example $5,500); therefore, they put in $1,375

[SJ]

I would try to do both- keep 401K at 8% and work on the Roth (using some of what you are currently saving)

For example, keep saving $500 month (I'm assuming this is for the house?) and put $400 to the Roth IRA. This should get you very close to the maximum for the Roth without messing with your 401K.

If you do need to adjust the 401K, just don't go below 5.5% no matter what.

[Deleted]

Oh I see...1.375% seems kind of low. I would max the Roth IRA then. That is what my H and I do also.

[hz80408]

Thanks Sarah! Makes sense. The savings is not really split ou/vague. It's kind of travel/house.

Missy- I know! It is low. They also have profit sharing and a pension, which I assume is why 401K match is so low.

[gt7301b]

I'd go ahead and use $3K from savings to start the Roth now. You can remove your contributions from a Roth at anytime. (Not that I am recommending that)

[hz80408]

Thanks gt