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Typically the most you can afford to put away should be saved into your 401k but it does depend on a few things.

For example, it depends on if there is a company match or not and how much they match. Generally speaking you should contribute enough to get whatever match you can since that is the best immediate return (vesting schedules aside).

But once you get the full match there may be a situation where adding more to a 401k may or may not be the best course of action. For example if you have to put away 5% of your pay in order to get all of the match and that comes out to around $2,200 a year yet you have determined that you can reasonably save 10% of your income where do you put that?

Since to get to 10% you’d need to contribute another $2,200 per year and this falls under the IRA contribution limits it may make sense to put the remainder of the money into say a Roth.

The problem is now though that you are saving 10% of your income yet only getting a pre-tax deduction of 5% so up front the savings isn’t quite as good, but half of that savings will also be tax-free down the road.

The other thing to consider is the very generous contribution limits in employer plans at $15,500. If you can save more than $4,000 a year and would like to reduce your current tax bill as much as possible it would make sense to put as much into the 401k.

So, it is a tough question to answer since it depends on many factors, but ultimately you should:

1. Contribute enough to get any sort of company match
2. If there is no match and current taxes aren’t as much of a concern and your total amount you can save is less than $4,000 consider a roth instead.
3. If you need to save more than $4,000 a year or taxes are a concern consider sticking to the employer plan.

For me though I like to do both because diversifying your tax liabilities is a smart thing to do considering we have no idea what taxes will be like once retirement comes. So I contribute enough to get all of my company match, plus a little extra to get some additional tax benefits and then I try to fund a roth IRA as much as I can throughout the year as well.

First of all, great site you have excellent content such as this post. Many people think the 401k is the end all, cure all and have no other savings. Borrowing against it is detrimental in my opinion aside from the opportunity cost (lost compounding). It effects them mentally too, if they keep borrowing against their 401k they’ll get into a nasty habit and could put their future in jeopardy. Also, they’ll never learn so they STILL won’t have an outside savings. Keep up the good work Jeremy, I’ll be a regular reader. Check out my site if you get a chance.