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Should I contribute to my 401(k) beyond the amount of my company match?

January 17, 2012: 5:05 AM ET

I have contributed 401(k) to the maximum the last 10 years. Knowing that my tax bracket will be higher in the future, it is better to reduce my 401(k) to the company match and invest the rest in the taxable account which is subject to 15% long term gain? –Name withheld, Lincoln, Nebraska

If you're absolutely certain that you're going to move up into a higher tax bracket in the future, then diverting some of your overall contribution to other investments might be the best strategy, according to Red Bank, N.J. financial planner Helen Hogan. But as you suggest, you should still contribute enough to your 401(k) so you can take advantage of the maximum match provided by your employer.

It's also important to adjust your portfolio to take into account how close you are to retirement, adds Hogan. For instance, if you're near retirement, you'll likely want a fair amount in safer, income-producing assets. If that's the case, earmark assets in your 401(k) for income and let your non-qualified investments focus on capturing capital gains.

Hogan also urges you to consult a tax professional to weigh the specifics of your situation and determine the best course of action, both from a tax standpoint and with an eye toward building as large a retirement nestegg as possible.

-- Jeff Wuorio

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