Why should investing in an IRA come before a 401k? How does this differ if a company offers x% match?

IRAs give you more control, and they usually have lower fees

401k match then IRA then 401k beyond match https://frum.finance/chart/

If you get a match its almost always worth taking the 401k though (unless maybe it has a terrible vesting schedule)

"more control" - over what?

IRA let’s you pick from any investments instead of what the 401k plan has negotiated, fees are lower, and you don’t need to go through the annoyance of rolling it over every time you change jobs.

Which investments you can make and access to the funds should you really need them.

Hm. So if I'm happy with the investments offered and I don't care about rolling forward, it's all about the fees?

I think the 401k at my last job had something like a $250-500 management fee each year, plus I think there was a $150 fee when I rolled it over

its a very minor optimization if you are happy with the fees and investments offered.

Benefit of the 401k is that you get the tax deduction immediately

my 401k is roth so that isn’t necessarily true. I would avoid overcomplicating this thread with roth vs traditional

Although I suppose you could fill out the w4 to lower the tax deducted from your paycheck

I do roth 401k :) benefit of the 401k was simplicity of setting it up and at least now I have a retirement account.

if you are okay with the investment options and fees, and you are looking for simplicity, stick with throwing everything in the 401k. If the simpliciy is worth more than the fee schedule, stay your course.

Eh, I dont have the time desire to even evaluate my investment options. It's a name brand (fidelity) with a retirement date fund, in theory I'm happy enough. In practice, I've had it for 4 years and they've been insane market wise so who's to say?

if a Target Date Fund is your preferred avenue here (given the pros and cons) then I think you are good to go to stay the course.

What's considered garbage investment options in a 401k?

A total stock market index fund with 1% expense ratio would be garbage when you could get the same thing in an IRA with 0.03% or 0% fees. Investing 500$ a month into your 401k this would be the difference over 40 years of $900,000 The ROTH Ira income max is actually not a hard limit because there is a backdoor IRA as an option. I am updating the flowchart to include these details. Also the roth ira max isn’t part of this discussion anyway since we are discussing 401k in general to ira in general and the roth nuance is really a side point that has its own workaround. Since a traditional IRA and a traiditonal 401k are equal in the income max regard. The contribution limits aren’t relevant because you can do both, which is why I said fill up your 401k match, then fill up your IRA, then fill up your 401k (as explained on the flowchart)

Mostly all makes sense. Just to clarify though, when saying first 401k match, then IRA then remainder 401k, the intent is to determine at the beginning of the year how much you have for investing in retirement funds, then contributing equal amounts throughout the year to meet these goals. So you're not switching contribution locations in the middle of the year as you meet your intended max for each type. Sound right or did I get that wrong?

You can do it either way! I personally would fill one up and then the next, but you can also do it super calculated upfront so you don't need to swap mid year.

Important note, if you make over a certain amount AND you have an employer 401k, your IRA contribution may not be deductible (the money still grows tax free): https://www.irs.gov/retirement-plans/2023-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work

Woah! That's a big deal, no? Wouldn't that be a big reason to go for a back door roth? Ie you're paying taxes on the contribution in either case

Yes it is!

Exactly this