Financial Education Series
Retirement Account Strategies
Optimizing Your Investment Allocation Across Account Types
When it comes to retirement investing, the type of account you use can be just as important as what you invest in. This guide explores how to strategically allocate your investments across different account types for maximum long-term advantage.
Why This Matters
The way you allocate investments across different account types can significantly impact your after-tax returns. By strategically placing high-growth assets in Roth accounts and more stable assets in traditional accounts, you can maximize your long-term wealth accumulation.
The Four-Step Process
Step 1: Employer Match
Always contribute enough to your 401(k) to get the full company match. This is free money and should be your first priority.
Example: If your employer matches 5% of your $100,000 salary, contribute at least $5,000 to get the full $5,000 match.
Step 2: Roth IRA
After securing your employer match, contribute to your Roth IRA. The 2024 limit is $7,000.
Strategy: The Roth IRA should be invested 100% in stocks for maximum tax-free growth potential.
Step 3: Return to 401(k)
After maxing out your Roth IRA, return to your 401(k) to contribute up to the annual limit ($23,500 in 2024).
Note: The allocation in your 401(k) will depend on whether you're maxing out all accounts.
Step 4: Optimize Allocation
Your 401(k) allocation depends on your situation:
When maxing out everything: Your 401(k) should be allocated 57.27% stocks and 42.73% bonds.
When not maxing out: Determining the exact percentage requires complex calculations based on your specific situation.
Example Scenario
Sample Portfolio Allocation
For a 30-year-old making $100,000 with a 5% employer match:
Contributions
Optimal Allocation
This content is educational in nature and updated as of March 2024. We aim to relay factual financial information, similar to how a newspaper would report market data. For complete information about our services, please review our Terms of Service.