<p>Assuming that the employee is unlikely to stay long enough to collect the matching contribution. Which would you advise a mid 20 yr old to do?</p>
<p>Roth has a fairly low max contribution limit, around $5000. But you can’t beat ~40 years of tax free growth.</p>
<p>401k comes in traditional and Roth varieties (though not all employers offer both), as does IRA.</p>
<p>If the employee thinks he will be gone by the time he is eligible to meet the vesting requirements of his employer’s match then invest in the Roth IRA. Otherwise, invest in the 401k enough to capture the company’s match then save the rest for a Roth IRA (if eligible) or a traditional IRA. If you max out the IRA contribution for the year and still want to save more for retirement then he can do more 401k contributions because his 401k plan may offer good performing institutional funds with low fees but large minimum investment requirements that would be difficult for an average Joe to get into.</p>
<p>Not a hard and fast rule, but I think do Roth earlier in your career when your salary is lower and you are likely to be in lower tax bracket. Then do more 401K later in the career when your income is higher/higher tax bracket to better take advantage of tax deduction. If there is a matching in the plan, always contribute enough to get the maximum matching money.</p>
<p>In reading the literature I see the employer match has no vesting period so I will advise at least contributing the % to get the maximum free money.</p>
<p>Yes, take the match if there is no vesting period. It is free money. Then as Krlilies said, Roth up to the max, then back to the 401K if he still wants to save more. :)</p>
<p>So the next phone call you will get is a question of where to invest the 401K and Roth money (at least that is what happened with my D1!). Recently I listed to this “Fresh Air” piece on 401K fees. I thought it was very interesting, and caused me to take a fresh look at some of the mutual funds I have invested in over the years. I decided to make some shifts over the next few years to more index funds (waiting for market dips to do so). I have some money waiting to be invested in my retirement funds (in the cash fund), and a couple underperforming funds (over several years) I would like to swap out as well. I tend to be a “buy and hold” investor, not quick to trade or shift strategies easily. But this caught my attention. I had my D1 listen as well.</p>
<p>[The</a> Tricky Business Of Retirement: Hidden 401(K) Fees : NPR](<a href=“The Tricky Business Of Retirement: Hidden 401(K) Fees : NPR”>The Tricky Business Of Retirement: Hidden 401(K) Fees : NPR)</p>
<p>As the others have said: 401K if there is a match, if not, Roth to the max (which is now $5,500) and then back to 401K if you can do more than that.</p>
<p>
Unlikely doesn’t mean “won’t.” No one can see the future and the employee may be at that job (or at least working for that employer) a heck of a lot longer than she plans or would like. What if he or she actuallyl doesn’t ge another job? It’ll be too late to go back and get the match then.</p>
<p>I would advise the employee to invest in the 401K and get the match. If she leaves before vesting, there’s no problem - she doesn’t get the employer’s money, which she also wouldn’t if she invested in the 401K. But if she stays, she’ll then have the free money.</p>
<p>Check with an accountant; it might be possible to do both.</p>
<p>Intparent- I bet your right on the next phone call. The packet came to our home address and I was asked to open it. I am going to look it over before forwarding it on. The investment options look to be numerous. I am sure there will be some anxiety. This is my perfectionist child who hates having to make decisions without knowing every detail.
DMD77- I have sent an email to the accountant.</p>
<p>"Roth to the max (which is now $5,500) " - The OP’s original question was for a mid 20 year old. It would be great if a young worker could stash away the Roth max (or more), but probably not affordable unless earning a good salary and living at home.</p>