Answer: Generally, you’ll want to make sure you’re on track for retirement before paying down a mortgage. Your priority usually should be contributing at least enough to your 401(k)s to get the full company match, and then contributing the maximum to Roth IRAs. This puts money in retirement “buckets” that get different tax treatment — withdrawals from 401(k)s are typically taxable as income, while Roth IRA withdrawals typically are tax free — and that allows you to have more control over your tax bill in retirement.

If you have additional money to contribute to your goals, you’ll have to decide whether to pay down your mortgage, put more into your 401(k) or contribute to a taxable account earmarked for retirement. (This latter option would give you yet another tax bucket — one where you can qualify for capital gains tax rates.)

It’s good to be mortgage-free when you stop work, but if your retirement savings aren’t adequate, you should be bolstering them now. Ten years from retirement is a good time to consult with a fee-only financial planner to discuss your individual situation, reality-test your retirement plans and fine-tune your investments.

You’ll have to pay regular income taxes on that money, but you won’t otherwise be penalized for trying to be aggressive about your retirement savings.

photo credit: Daniel Greene

I’m getting to this good news a little late, but it’s still worth noting. Fidelity Investments reported last month that more workers increased the amount of money they put into their 401(k) accounts during the second quarter than decreased their contributions. In the three months ended June 30, 4.7% boosted their contributions, with just 3% decreasing it.

That was a switch from the previous three quarters, when workers with decreasing contributions had outnumbered those raising them. In those earlier quarters, over 6% of participants cut their contributions.

Note that we’re talking about changes made on the margins, since the vast majority of 401(k) contributors don’t make any changes month to month or even year to year. And that’s a good thing. Those who keep on investing in good years and bad will ultimately make more money than those who try to time the markets.

Maybe it’s time to look at your own 401(k) contribution rate and see if you might be able to boost it a percentage point or two. If you need some inspiration, use MSN’s Retirement Planner to see how much you should be saving.

Other findings from Fidelity:

• The average 401(k) account balance rose 13.5 percent in the second quarter from the end of the first quarter in 2009 to $53,900. The increase was primarily driven by increases in the stock markets as well as worker and employer contributions.
• About 68 percent of the money contributed to 401(k)s  went to stocks, which is down from 75 percent in the past few years and a high of more than 80 percent in 2000.
• About 42 percent of contributions went to domestic and international stocks; 24 percent to blended or lifecycle investments; 8 percent to company stock; 24 percent to conservative investments, such as money markets and fixed-income assets.

Need more info? Check out some of my advice on saving and retirement:

• How to retire in bad times
• No 401(k) match? Save anyway
• Under 35? Hurray for the meltdown!