Michael on July 31st, 2007
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You: How’s it going in Chicago?

Great – except this blue-line El construction is enough to drive someone to, well, drive in Chicago.

You: Yeah, they say it will be much better when the construction is over.

Ha! That’s a good one!

You: Hey, just trying to keep it light. So what’s new?

Well, last night’s seminar at the new ING DIRECT cafe went very well. In fact, I’ll share with you one of the several excellent questions asked at the event.

You: If I can’t do both a maximum 401(k) contribution and a maximum Roth IRA contribution, what should I do?

I love this question. First, it’s a great question because it shows desire as to how best to save as opposed to the more common dilemma of if you should save. Someone asking this question clearly “gets it.”

The other reason I love this question is that the answer is fairly simple. (What can I say–I like easy questions.)

If your employer matches part of your 401(k) contribution, that is always your best form of saving. If, for example, your employer matches 50% of the first 6% you put into your retirement plan, this provides you with an instantaneous guaranteed 50% return on your money. You put in $1.00, they add $0.50. There simply is nothing better out there. Period.

Gary: I’ve tried arguing that point. Even I’ve given up on that one.

You: So always take advantage of an employer match?

Rich people never turn down free money. Neither should you.

You: But what if I am already contributing up to the amount my employer matches?

Then, if you can still afford to save more for retirement and you qualify, you should contribute to a Roth IRA. A Roth IRA provides for tax-free growth of your retirement investments. While you don’t get the tax deduction you receive from a 401(k) contribution, the tax-free growth (as opposed to a 401(k)’s tax-deferred growth) makes the Roth a very attractive option.

Hope to see you tonight at 6PM at 21 East Chestnut Street, Chicago where I’ll once again be showing people how to live Beyond Paycheck to Paycheck.
If you were there last night, say hello or ask a question below!

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