401k or Roth IRA

Traditional wisdom is that you should max out your 401k before contributing to anything else. That depends on whether you believe taxes will go up or down in the future. In a 401k or traditional IRA, the contributions go in tax free (are deducted from your income) but come out and are taxed at whatever rate you are then subject to. In a Roth IRA, contributions are taxed at your normal rate, but withdrawals are tax free. The arguments for tax free contributions are (1) you're probably at a higher rate now than you will be after retirement; and (2) you'll be paying with future dollars that will likely be devalued due to inflation.

But think of this. Suppose you contribute $150,000 over your lifetime, $500 a month for 25 years. That $150,000 is deductible from your income taxes. When you retire, that $150,000 may have grown to $500,000 or more, depending on the success of your investments. Now instead of taxing only the $150,000 you contributed, Uncle Sam will collect taxes on the full $500,000. And you can't do anything about how much you withdraw, because the tax code requires certain minimum withdrawals beginning at age 70-1/2, regardless of how much you actually need.

Contributing to a 401k still makes sense in order to get your employer's match, assuming your employer still matches contributions. A match doubles your money up to the amount of the match. So be sure to contribute enough to get the full matching employer contribution. Beyond that, it might make sense to contribute the rest to a Roth IRA if you think taxes will go up in the future.