401K vs. Roth IRA- how much in each one?

I have read differing opinions on this and don't know which is better. I first read to contribute as much as you can to the 401K and then open an IRA on top of that. I recently read to only contribute what your company matches to the 401K and invest the rest in a IRA. Someone at work told me that because of my age, I should take advantage of the pre tax and do the 401K. But I know I want an IRA b/c of the tax free investment income.
I currently contribute 12% to my 401K and do not have an IRA yet.
I was thinking of leaving the 12% and investing maybe $100 - $200 a month in the IRA- is that enough? I can't afford more than that without reducing the % to my 401K. Thank you!!

I was talking about a Roth IRA, thanks for clarifying. I definitely am not maxing out my 401K each year, so after the 4% match- I don't know what's best. I really don't want to pay a financial adviser if I can figure it out for myself :)

Honestly the best answer is that you should pay the money to the financial advisor because the ROTH IRA may not be the best answer for you. All depends on your income/tax level now. Your age now. When you expect to retire. Do you plan on having children? Getting married? Career choice? and the list goes on and on.

In all reality, the majority of the adult people in the United States are fairly close to the maximum tax rate that they will ever be in. So, the ROTH option is not necessarily better for them. Sure it's tax free on the back end...but 1) you don't get to put in as much so you have to carry out the investment period long enough to overcome that. And 2) there is guarantee of that tax-free status. Yes, politically it would be hard to do...but people say that about social security benefits and most don't think that will be around when they retire...why do people blindly think that their ROTH earnings won't be taxed?

As for those that talk about investment options available in an IRA versus a 401k. Most people get overwhelmed with the number of funds in a 401k...paralysis by analysis it's called. What they end up doing in IRA's is consolidating the investments into a few well known funds. Sure the fees might be lower but the performance isn't necessarily better. And here's the kicker....if you're saving enough so that you can retire early....you'd better have your money in a 401k. Because if you leave your job after turning 55 you can withdraw your money penalty free. That option isn't available in an IRA.

There are pros and cons to every investment option....a financial advisor would help you decide which way works best for you. No, i'm not an investment advisor. And typically I don't like them...but their advice would be specific to you which is more than you can say for what happens here. If you do go to see one, make sure that they are paid on a fee based approach (ie hourly) instead of investment based. And, make sure they are providing you with financial advice rather than investment advice. Do not let them tell you which specific funds to invest in.

you can put up to $14,000 into a 401k and it is pretax and tax deferred. subject to income limits you can put $4500 into an IRA or a Roth IRA each year. You should always put as much into a 401k as will be matched by your employer. Beyond this however it is up to you there is one thing though that you didn't mention that you should also consider: the ROTH IRA

A Roth has the same limits as the regular IRA but you use after tax money which then grows tax deferred until you reach 59 1/2 then it is tax free for you to withdraw it. Additionally after you have had it for 5 years you may withdraw penalty free up to $10,000 for schooling or purchasing your first house. All of these are great ways to invest but you really need to sit down with a financial advisor to map out what your individual needs are as well as your goals.

I disagree with the numbers in the previous answer. According to the IRS, the correct numbers are as follows.

You can put up to $15,500 in a 401k. If you're 50 years of age or older, you can contribute an additional $5,000. These numbers are valid for 2007 and 2008.

For IRAs, you can contribute up to $4,000 for 2007 and $5,000 for 2008. If you're 50 or older, you can contribute an additional $1,000 in both years. Of course, this is subject to IRS income limits if it's a Roth IRA.

I can't afford to max out both a 401k and an IRA, so I reduce my 401k contribution and max out a Roth IRA. However, I make sure that enough goes into the 401k to get the full employer match. The 401k gives me some immediate tax savings and the Roth gives me tax-free income when I retire. The IRA also allows me to pick the investments that I want. With a 401k, you're stuck with whatever your employer offers even if they're not good investments.