Contribution Limits

• It is important to consider the contribution limits of both the Roth IRA and the 401k plan when deciding how to allocate your retirement resources. The contribution limit for the Roth IRA is relatively low, at $5,000 plus an extra $1,000 contribution for those 50 and older. The contribution limit for a 401k plan is more generous, at $16,500 plus an extra $5,500 for those 50 and older. Both of these limits are as of 2011 and subject to change.
  
  

Company Match

• The presence of a company can be a big factor in favor of the 401k plan. When calculating the relative benefits of a 401k or Roth IRA, it is important to look at how much of your contribution the company is willing to match. The company match varies from firm to firm, with some matching their workers dollar for dollar and others matching only a portion of what their workers put in. Review the literature for your 401k plan carefully, including the company match. Then decide how to allocate your contributions to make the most of those company matching funds.
  
  

Tax Savings

• Both 401k plans and Roth IRA accounts provide significant tax savings, but they do it in different ways. You need to calculate your tax rate and assess your current and projected future tax rates. Contributing to a 401k plan lowers your taxable income for the current year, which in turn lowers your tax bill. Contributing to a Roth IRA does not lower your current tax bill, but it does help you build up a pool of tax-free savings you can tap when you retire.
  
  

Investment Choices

• Many workers find that the investment choices in their 401k plans are somewhat limited, while their Roth IRA accounts provide more flexibility. Workers whose 401k plan choices are limited may want to concentrate on maxing out their Roth IRA accounts first, then allocating their remaining funds to their 401k plans. Workers who are happy with the choices in their 401k plans may want to put more of their money to work there, maxing out their 401k plans and putting extra money toward their Roth IRA contributions as they can.