Retirement Account Options When Beginning a Career
Journal of Financial Service Professionals, May 2014
6 Pages Posted: 13 Mar 2014
When college graduates begin their careers, they face a number of financial choices and obligations. Their choices typically include one or more retirement account options. The options generally include individual retirement accounts (IRAs) (Roth and/or traditional), 401(k) plans (Roth and/or traditional), and, possibly, 401(k) contributions matched by the employers. In this article, a decision-making hierarchy is provided. The hierarchy ranks all of the retirement account alternatives in order to facilitate choices that are tax efficient and maximize wealth. A simplified version of the ranking is as follows: (1) Roth 401(k) with matching employer contributions; (2) traditional 401(k) with matching employer contributions; (3) Roth IRA; (4) Roth 401(k); and (5) traditional 401(k).
Keywords: 401(k), Roth 401(k), IRA, Roth IRA, Matching employer 401(k) contributions
JEL Classification: H24
Suggested Citation: Suggested Citation