General rule of thumb, keep in mind that all of these retirement options have annual limits, so I won't mention the limit over and over again:
1) If you have a 401k/403b option, and if your company has a match, fund it at least to the level where you get all of the match.
2) At that point, if you are in the marginal 25% tax bracket (or higher), continue to fund the 401k/403b option (if you have the option of a roth 401k, stick with the traditional 401k) or if you don't have a 401k/403b, fund a traditional IRA, until your income drops into the marginal 15% tax bracket.
3) If you are in the marginal 15% tax bracket, or you funded a 401k/403b to the point where you drop into the 15% bracket, then if you are eligible to fund a Roth IRA (or if you have a Roth 401k option), start putting money into that, up to the max.
4) If you had funded a traditional 401k/403b and switched to the Roth IRA when you hit the 15% bracket and funded that to the max and you STILL have extra money to invest, then go back to the traditional 401k/403b and fund that to the max.
5) If you have maxed out all tax-advantaged retirement options and you still have money left to invest, then put it into a regular investment account. (or you could try real estate, or some complicated exotic things like over-funding a full life policy and borrowing from it later, which has its own risks)
Very, very few people are ever going to have more money hitting the 25% marginal tax rate in retirement than while working unless they are rich (and if you are rich, you aren't reading Chiefsplanet for investing advice). Even if your marginal top bracket in retirement is 25%, more than likely less of your money will be in that bracket because the levels of each bracket go up every year. So, in my opinion, for money that would be hitting the 25% bracket today I'm betting at least some of that money would be taxed less later so the traditional option is more attractive, and for money that would be hitting the 15% bracket, it'll either be a tie or the money would be taxed more in retirement, so the Roth is more attractive.
As for what investments to buy? That is a whole different question.
edit: If you are in a super-high income tax state and plan to retire in a super-low income tax state, or if you are in a super-low income tax state and plan to retire in a super-high income tax state, that could screw up what I mentioned above. (ie, if you plan to retire in a low income tax haven, that makes the traditional option that much more attractive than the Roth)
how many emo kids does it take to change a lightbulb?
none they just sit in the dark and cry
Last edited by alnorth; 12-30-2012 at 12:10 PM..