Pay Increase - stick with company's 401k or on my own?

[Lis]

At some point in the (hopefully) near future, I should be expecting a bump up in salary (yay!). I'm wondering if it makes more financial sense to increase my 401k contribution with my company or take the cash and stick it in Vanguard.

I'm currently contributing 5%, which is more than enough to get my company match (2.67%). Our company's matching policy is a bit strange... we get ~2.5% per paycheck, plus 10% of our total income in January as long as were were employees on Dec. 31st. Our 401k is with Fidelity, and my fee is 1.03% (one of the best ones we're offered, unfortunately).

I just opened a Roth IRA (yay again!) with Vanguard. At my current salary, I probably won't be able to max it out this year (since I opened it halfway through the year), but should be able to next year.

Let's just say if I get my promotion and salary bump, I'm able to max my Roth IRA out this year. Would it make more financial sense to open up a taxable account through Vanguard and contribute money there, while maintaining my 5% contribution to my 401k, or bump up the contribution? Even if I max out my contribution, it won't lower me to a new tax bracket, which is the only reason I can think of increasing contribution to 401k.

[surfhb]

Even if it won't lower you into the next bracket you're still tax deferring $18k.    Those fees are high but you still pay less in taxes

[Frankies Girl]

Keep putting what you can in the 401k. Even with higher fees or less than stellar choices, you're saving tax deferred while also lowering your taxable income, meaning you'll pay less in income taxes overall. The 401k limits are so much higher than what you're allowed for an individual IRA (Roth or traditional) that the main advantage is that it allows you to shelter much more money. Just find a broad market fund that has the lowest expense ratio and go for that until you either leave that job or get better options in your plan.

And it is possible to tap 401k savings before 59.5 for early retirement, in case you're thinking that it makes no sense to fill your 401k since it is "locked up" until you're old... it isn't. (many posts on the subject - search for SEPP or Roth Pipeline and you should find them unless someone else posts a link)

And talk to your plan administrator about adding in some of Fidelity's Spartan index funds. They should at least have their Spartan Total Stock Market Index fund (FSTVX) in your 401k - so ask them to please add this fund. It's expense ratio is just .07%, and it is equivalent to Vanguard's total stock market index fund.

Here is a good chart showing the Fido equivalents. It would be awesome to get a few of these in your 401k:
http://www.bogleheads.org/wiki/Fidelity



The Roth would be after you max your 401k, and taxable account after you've maxed the Roth (and have no other options like an HSA).