What is the maximum I can have stored in a traditional 401(k) and a Roth 401(k)?
I've never seen anything in any IRS publication that placed limits on the balance of a 401K, only on what you can contribute (and defer from taxes) each year.  The way the IRS 'gets theirs' as it were is on the taxes you have to pay (for a traditional IRA anyway) which would not be insubstantial when you start to figure out the required minimum distribution if the balance was 14Mill.. You're required to take out enough to in theory run the thing out of money by your life expectancy.. The IRS has tables for this stuff to give you the exact numbers, but for the sake of a simple example, their number for someone age 70 (single or with a spouse who is not more than 10 years younger) is 27.4..  If we round that to 28 to make the math nice, then you would be forced to withdraw and pay taxes on around $500,000 per year.  (So there would be a hefty amount of taxes to be paid out for sure). So a lot of that $500K a year going to pay taxes on your distributions, but then, considering you only contributed  660,000 pre-tax dollars in the first place, what a wonderful problem to have to deal with.  Oh don't throw me in THAT briar patch mr fox! The numbers aside (I'd not assume 12%/yr) there is no limit to the balance. There are 401(k) accounts that have great matching and profit sharing deposits putting the per year limit closer to $45k, combine that with company stock in, say, Apple which has risen 60 fold this past decade, and balances in the tens of millions are possible.
Does your employer provide a matching contribution to your 401k?  If so, contribute enough to the 401k that you can fully take advantage of the 401k match (e.g. if you employer matches 3% of your income, contribute 3% of your income).  It's free money, take advantage of it. Next up, max out your Roth IRA.  The limit is $5000 currently a year. After maxing your Roth, revisit your 401k.  You can contribute up to 16,500 per year. You savings account is a good place to keep a rainy day fund (do you have one?), but it lacks the tax advantages of a Roth IRA or 401k, so it is not really suitable for retirement savings (unless you have maxed out both your 401k and Roth IRA). Once you have take care of getting money into your 401k and Roth IRA accounts, the next step is investing it.  The specific investment options available to you will vary depending on who provides your retirement account(s), so these are general guidelines. Generally, you want to invest in higher-risk, higher-return investments when you are young.  This includes things like stocks and developing countries. As you get older (>30), you should look at moving some of your investments into things that less volatile.  Bond funds are the usual choice.  They tend to be safer than stocks (assuming you don't invest in Junk bonds), but your investment grows at a slower rate. Now this doesn't mean you immediately dump all of your stock and buy bonds.  Rather, it is a gradual transition over time.  As you get older and older, you gradually shift your investments to bond funds. A general rule of thumb I have seen: 100 - (YOUR AGE) = Percentage of your portfolio that should be in stocks Someone that is 30 would have 70% of their portfolio in stock, someone that is 40 would have 60% in stock, etc. As you get closer to retirement (50s-60s), you will want to start looking at investments that are more conservatie than bonds.  Start to look at fixed-income and money market funds. I think you're missing several key issues here. First for the facts: IRA contributions are $5500 a year maximum (currently, it changes with inflation), i.e.: you cannot deposit $10K in an IRA account in a single year. IRA withdrawals can only be made if you have something liquid in the IRA. You cannot withdraw from Lending Club IRA unless you manage to sell the notes currently held by you there. Roth IRA is funded with after-tax money, and you can withdraw your deposits in Roth IRA any time for any reason. No 10K limit there, only limited by what you deposited. However the main thing you're missing is this: You can withdraw up to $10K from your IRA for first home purchase without penalty. Pay attention: not without tax but without penalty. So what is the point in depositing $10k into IRA just to withdraw it the next year? "First, the limit this year is $16,500, $22,000 for age 50 or older. Next, does the company give you any match? If so, how much? Some will match your deposits dollar for dollar up to a certain percent of your pay. If you make $50k and deposit say 6%, that's $3k matched by company, for example. This deposit/match is the first priority.  Next, you should understand the expenses in the account. A bad 401(k) with high cost quickly negates any tax deferral benefit. The 401(k) options also may be limited, what are the choices of investments?  Is your income high enough that you can save $21,500? One thought is to save enough to drop back out of the 25% bracket, and go Roth after that. This is a good balance for most. By the way, Fairmark is a great site to see what bracket you are in. If your return is simple, you can just find your standard deduction and exemption numbers and get to your taxable income very simply. The debate of of Roth vs Pretax (for both IRA and 401(k) accounts) can get pretty complex, but I found the majority of earners falling into the ""live in the 15% bracket, tops"" range." 401(k) can come in traditional and Roth forms, as can IRAs. Roth IRA money is not locked away for 40 years, only the earnings are locked away, and earnings can also be withdrawn for special cases. You might not be able to invest in an IRA if your income is too high, and if you don't get a match for your 401(k), that might not be the best option either. The biggest advantage of the 401(k) is the match (if it exists) if there's no match, the second biggest advantage is the tax deferral. If you are in a low tax bracket, that isn't as big of an advantage either. I would say that there are plenty of reasons why you might not max out the 401(k) for savings, but it's pretty easy to max out the Roth IRA if that makes more sense, so there aren't a lot of reasons why not. Is there any benefit to investing in a Roth 401(k) plan, as opposed to a Roth IRA?  They have separate contribution limits, so how much you contribute to one does not change the amount you can contribute to the other.  Which is relevant to your question because you said  the earnings on that account compounded over the next 40 years growing tax-free will be much higher than what I'd save on current taxes on a traditional 401(k).   This is only true if you max out your contribution limits.  If you start with the same amount of money and have the same marginal tax rate in both years, it doesn't matter which one you pick.   Start with $10,000 to invest.  With the traditional, you can invest all $10,000.  With the Roth, you pay taxes on it and then invest it.  Let's assume a tax rate of 25%.  So invest $7500.   Let's assume that you invest either amount long enough to double four times (forty years at 7% return after inflation is about right).  So the traditional has $160,000 and the Roth has $120,000.   Now you withdraw them.  For simplicity's sake, we'll pretend it's all one year.  It's probably over several years, but the math is easier in a single year.  With the Roth, you have $120,000.  With the traditional, you have to pay tax.  Again, let's assume 25%.  So that's $40,000, leaving you with $120,000 from the traditional.  That is the same amount as the Roth!   So it would make sense to  If you can max out both, great.  You do that for forty years and your retirement will be as financially secure as you can make it.  If you can't max them out, the most important thing is the employer match.  That's free money.  Then you may prefer your Roth IRA to the 401k.   Note that you can also roll over your Roth 401k to a Roth IRA.  Then you can withdraw your contributions from the Roth IRA without penalty or additional tax.  Alternate source.   Beyond answering your question, I would still like to reiterate that Roth or traditional does not have a big effect on your investment unless you max them out or you have different tax rates now versus in retirement.  It may change other things.  For example, you can roll over a Roth 401k to a Roth IRA without paying taxes.  And the Roth IRA will act like it was contributed directly.  You have to check with your employer what their rollover rules are.  They may allow it any time or only at employment separation (when you leave the job).   If you do max out your Roth accounts, then they will perform better than the traditional accounts at the same nominal contribution.  This is because they are tax free while your returns in the other accounts will have to pay taxes. But it doesn't matter until you hit the limits.  Until then, you could just invest the tax savings of the traditional as well as the money you could invest in a Roth. "Whether you contribute to an IRA (Traditional or Roth) and whether you contribute to a 401k (Traditional or Roth) are independent. IRAs have one contribution limit, and 401ks have another contribution limits, and these limits are independent. I see no reason why you wouldn't maximize the amount of money in tax-advantaged accounts, if you can afford to. In your first year of work, especially if you only work for part of the year, you're likely in a lower tax bracket than in the future, so Roth is better than Traditional. Another thing to note is that the money in the Roth IRA can be part of your ""safety net"" -- contributions to a Roth IRA (but not earnings) can be withdrawn at any time without tax or penalty. So if there is an emergency you can withdraw it, and it wouldn't be any worse than in a taxable account. And if you don't need it, then it will enjoy the tax benefits of being in the IRA." "To answer the first part of your question: yes, I've done that!  I did even a bit more.  I once had a job that I wasn't sure I'd keep and the economy wasn't great either.  In case my next employer wouldn't let me contribute to a 401(k) from day one, and because I didn't want to underfund my retirement and be stuck with a higher tax bill - I ""front-loaded"" my 401(k) contributions to be maxed out before the end of the year.  (The contribution limits were lower than $16,500/year back then :-)) As for the reduced cash flow - you need of course a ""buffer"" account containing several months worth of living expenses to afford maxing out or ""front-loading"" 401(k) contributions.  You should be paying your bills out of such buffer account and not out of each paycheck.  As for the reduced cash flow - I think large-scale 401(k)/IRA contributions can crowd out other long-term saving  priorities such as saving for a house down payment and the trade-off between them is a real concern.  (If they're crowding out basic and discretionary consumer expenses, that's a totally different kind of problem, which you don't seem to have, which is great :-)) So about the trade-off between large-scale 401(k) contributions and saving for the down payment.  I'd say maxing out 401(k) can foster the savings culture that will eventually pay its dividends.  If, after several years of maxing out your 401(k) you decide that saving for the house is the top priority, you'll see money flow to the money-market account marked for the down payment at a substantial monthly rate, thanks to that savings culture. As for the increasing future earnings - no.  Most people I've known for a long time, if they saved 20% when they made $20K/year, they continued to save 20% or more when they later made $100K/year.  People who spent the entire paycheck while making $50K/year, always say, if only I got a raise to $60K/year, I'd save a few thousand.  But they eventually graduate to $100K/year and still spend the entire paycheck.  It's all about your savings culture. On the second part of your question - yes, Roth is a great tool, especially if you believe that the future tax rates will be higher (to fix the long-term budget deficits).  So, contributing to 401(k) to maximize the match, then max out Roth, as others suggested, is a great advice.  After you've done that, see what else you can do: more 401(k), saving for the house, etc." Assuming you max-out your Roth IRA with $5000 in inflation-adjusted contributions every year from 25-65, your balance at age 65 will depend on the post-inflation return you get in the account.  Assuming you withdraw 4% per year after that, here is what your income will be: (All numbers are in inflation-adjusted 2011 dollars.)   If your post-inflation return is zero - if you buy treasury bonds, money-market accounts, or something like that - you'll have a simple $5000 * 40 = $200,000, which will give you an income of around $8000 per year. If you get a 3% post-inflation return - e.g. fairly safe Muni bonds, corporate bonds, and boring stocks - you'll approximately double your money to around $393,000, giving you an income of over $15,000 per year. If you get a 6% return - e.g. more aggressive stocks and more risk-taking - you'll approximately double your money again to over $825,000.  A 4% withdrawal rate will give you an income of around $33,000 per year. Stocks have historically returned around inflation + 8% - that will get you over $1.4 million - and an annual income of over $56,000 per year. So, yes, it is feasible to retire on nothing but a maxed-out Roth IRA. You can't say I'm wrong and then go on to explain why exactly what I said is correct.  :)  You (and I) are in complete agreement that there's no LTCG on either Roth *or* Traditional 401ks, because you pay both as straight income - The former up front, the latter when you withdraw it.  My point was that, for virtually everyone, their regular income tax rate is **higher** than their LTCG rate. "Couple points: 1) Since the Roth is after tax, you can effectively contribute more than you could with the Traditional IRA before hitting the limits. So in your example, if you had extra money you wanted to invest in an IRA, you could invest up to $1,750 more into the Roth but only $500 more into the Traditional (current limits are $5,500 per year for single filers under 50). Your example assumes that you have exactly $3,750 in spare money looking for an IRA home.  2) The contributions (but not earnings) can be withdrawn from the Roth at any time, penalty and tax free.  3) The tax rate ""lock-in"" can be significant, especially early on when you are at a relatively low tax bracket, say 15%, but expect to be higher at retirement.  4) Traditional IRAs and 401(k) are taxed as ordinary income, so you go through the tax brackets. Even if the marginal rate is 25%, the effective rate may be lower. If you have a Roth, conceivably you could reduce the amount you need to withdrawal from the Trad IRA/401(k) to reduce the effective tax rate on those (of course subject to minimum distributions and all that). This is more an argument to have a mix of pre- and post-tax retirement accounts than strictly a pro-Roth reason." "You seem to be treating your Roth IRA as a sort of savings account for use in emergency situations.  I would use a savings account for savings as withdrawing money from an IRA will have penalties under various circumstances (more than contributions, Roth IRA less than 5 years old, more than $10k for a down payment). Also, you mention folding your IRA into your 401k so that it will ""grow faster"".  However, this will not have that effect.  Imagine you have $30k in an IRA and $100k in a 401k and you are averaging a return of 8% / year on each.  This will be identical to having a single 401k with $130k and an 8% / year return. This is not one of your questions, but employer matches are not counted in the 401k contribution limit.  If your 22% calculation of your salary includes the match to reach the max contribution, you can still contribute more." If you exceed the income limit for deducting a traditional IRA (which is very low if you are covered by a 401(k) ), then your IRA options are basically limited to a Roth IRA. The Cramer person probably meant to compare 401(k) and IRA from the same pre-/post-tax-ness, so i.e. Traditional 401(k) vs. Traditional IRA, or Roth 401(k) vs. Roth IRA. Comparing a Roth investment against a Traditional investment goes into a whole other topic that only confuses what is being discussed here. So if deducting a traditional IRA is ruled out, then I don't think Cramer's advice can be as simply applied regarding a Traditional 401(k). (However, by that logic, and since most people on 401(k) have Traditional 401(k), and if you are covered by a 401(k) then you cannot deduct a Traditional IRA unless you are super low income, that would mean Cramer's advice is not applicable in most situations. So I don't really know what to think here.) You have two questions - first - no, if you are above the deduction limit, then you still have a traditional IRA deposit but with post tax money, tracked via form 8606.  Second - If I read this right, if you cannot take the deduction, but can do the Roth, by all means, this is the 'no-brainer' decision. Makes no sense to deposit non-deducted to a traditional IRA if you can do Roth.  But - for sake of the full picture - if above the Roth limit, you still should make the post tax deposit (to the traditional.) If you have no pretax IRA at all, you can convert immediately. If you have a mix, you have the option to convert piecemeal paying the tax on the pro-rated amount the pretax represents. "Your contribution limit to a 401(k) is $18,000.  Your employer is allowed to contribute to your 401(k), usually a ""matching contribution"".  That matching contribution comes from your employer, so is not subject to your personal contribution limit. A contribution to a regular 401(k) is typically made with pre-tax money (i.e. you don't pay payroll taxes on the money you contribute) so you pay less taxes for the current tax year.  However when you retire and you take money out, you pay taxes on the money you take out.  On one hand, your tax rate may be lower when you have retired, but on the other hand, if your investments have appreciated over time, the total amount of tax you pay would be higher. If your company offers a Roth 401(k) plan, you can contribute $18,000 of after tax money.  This way you pay the tax on the $18,000 today, as you would if you did not put the money in the 401(k), but when you take the money out at retirement, you would not have to pay tax.  In my opinion, that serves as a way to pay effectively more money into your 401(k). Some firms put vesting provisions on the amount that they match in your 401(k), e.g. 4 years at 25% per year.  So you have to work 1 full year to be entitled to 25% of their matching contribution, 2 years for 50%, and 4 years to receive all of it.  Check your company's Summary Plan Description of the 401(k) to be sure. You are not allowed to invest pre-tax money into a Traditional IRA if you are already contributing to a 401(k) plan and have reached the income limits ($62,000 AGI for single head of household). You are allowed to contribute post-tax money to a Traditional IRA plan if you have already contributed to a 401(k), which you can then Roll-over into a Roth IRA (look up 'backdoor IRA'). The IRA contribution limit applies to all IRA accounts over that calendar year.  You could put some money in a traditional IRA, a Roth IRA, another traditional IRA, etc. so long as the total amount is not more than the contribution limit. This gives you an upper limit of 5.5k + 18k = 23.5 investments in retirement accounts. Note however, once you reach age 50, these limits increase to 6.5k (IRA) + 24k (401(k)).  They also are adjusted periodically with the rate of inflation. The following approach may be more efficient for building wealth: This ordering is the subject of debate and people have different opinions. There is a separate discussion of these priorities here:  Best way to start investing, for a young person just starting their career? Note however, a 401(k) loan becomes payable if you leave your company, and if not repaid, is an unauthorised distribution from your 401k (and therefore subject to an additional 10% tax penalty). You should also be careful putting money into an IRA, as you will be subject to an additional 10% tax penalty if you take out the money (distribution) before retirement, unless one of the exceptions defined by the IRA applies (e.g. $10,000 for first time home purchase), which could wipe out more than any gains you made by putting it in there in the first place. Your specific circumstances may vary, so this approach may not be best for you.  A registered financial advisor may be able to help - ensure they are legitimate: https://adviserinfo.sec.gov" $10.90 for every $1000 per year. Are you kidding me!!! These are usually hidden within the expense ratio of the plan funds, but >1% seems to be quite a lot regardless. FUND X 1 year return 3% 3 year return 6% 10 year return 5% What does   that exactly mean? This is the average annual rate of return. If measured for the last 3 years, the average annual rate of return is 6%, if measured for 1 year - it's 3%. What it means is that out of the last 3 years, the last year return was not the best, the previous two were much better. Does that mean that if I hold my mutual funds for 10 years I will get   5% return on it. Definitely not. Past performance doesn't promise anything for the future. It is merely a guidance for you, a comparison measure between the funds. You can assume that if in the past the fund performed certain way, then given the same conditions in the future, it will perform the same again. But it is in no way a promise or a guarantee of anything. Since my 401K plan stinks what are my options. If I put my money in a   traditional IRA then I lose my pre tax benefits right! Wrong, IRA is pre-tax as well. But the pre-tax deduction limits for IRA are much lower than for 401k.  You can consider investing in the 401k, and then rolling over to a IRA which will allow better investment options. After your update: Just clearing up the question. My current employer has a 401K. Most of   the funds have the expense ratio of 1.20%. There is NO MATCHING   CONTRIBUTIONS. Ouch. Should I convert the 401K of my old company to Traditional IRA and   start investing in that instead of investing in the new employer 401K   plan with high fees. You should probably consider rolling over the old company 401k to a traditional IRA. However, it is unrelated to the current employer's 401k. If you're contributing up to the max to the Roth IRA, you can't add any additional contributions to traditional IRA on top of that - the $5000 limit is for both, and the AGI limitations for Roth are higher, so you're likely not able to contribute anything at all to the traditional IRA. You can contribute to the employer's 401k. You have to consider if the rather high expenses are worth the tax deferral for you.