Prioritizing investments

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Revision as of 14:16, 20 July 2011 by Chipmonk (talk | contribs) (add template and clarify Roth=Roth IRA)
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Template:Bogleheads Investing Start-Up Kit The general rule for investing priority is:

  1. Company plan (401k/403b, etc.) up to the company match
  2. Max out Roth IRA
  3. Max out 401k/403b
  4. Taxable Investing

One exception to this order might be to first add additional contributions to the company plan if it offers good, low-cost funds. An investor's tax bracket might influence the decision as well: Those in higher tax brackets should consider higher contributions to the tax-deferred plan. If the company plan offers a Roth option, then again, taxes will have an influence on which option is the most efficient.

Many company plans contain high cost funds which make them unattractive. If you have such a plan, look for one or two index funds or a bond fund that can be used. If there is a match, it's always wise to use the plan. If there is no match, the power of tax-deferred compounding and automatic contributions still favors using the plan with limited contributions. Also, the possibility that you might leave the current employer means you most likely can roll the assets in the poor plan to either a better company plan or an IRA.

Another order discussed in the Bogleheads' Guide to Retirement Planning considers debt.

  1. Invest up to the match
  2. Pay Off high Interest Debt
  3. Tax-Deductible Retirement Accounts
  4. Roth IRA
  5. Taxable Accounts
  6. Nondeductible IRAs and Annuities

See also