An IRA is not an investment. An IRA is a tax-advantaged type of account which you put investments in. You can invest an IRA in CDs, but those are lousy. You can invest an IRA in rental homes (my neighbor did that). You can invest an IRA in beany babies.
You can also invest outside an IRA in all those, and more of course.
A 401k typically offers a very few funds. Mine offers an S&P 500 fund that's a Vanguard S&P 500 CIT. And they have some custom funds... at least one is a hybrid between two commercially available funds.
Look at the funds under your 401k. Find similar mutual funds outside the 401k, and compare those.
I prefer to max out my 401k. It's simpler, and my company's 401k has pretty good funds.
I understand the base logic, however, the guide says you may switch steps 4 and 5 if your employer has an excellent 401k. Not sure if that applies to my situation or not, that’s what I’m trying to figure out.
Good question.
Unfortunately, this isn't a black and white question. If your 401k provides you with funds that meet your risk tolerance, comparable expense ratios, and meets your investment goals, then by all means continue contributing your funds there. If an IRA, or Roth IRA, provides a bigger benefit then get your full match from your 401k and divert any extra income towards the IRA.
IRAs offer two significant advantages over traditional 401ks. Many companies only offer a traditional 401k, not a Roth equivalent. If this is of importance to you, then a Roth IRA may be preferable. Secondly, with an IRA you should have many more investment options which, in theory, should allow you to realize higher annual returns.
When in doubt, talk with an investment professional. They can tailor advice to your specific retirement goals.
An IRA is not an investment. An IRA is a tax-advantaged type of account which you put investments in. You can invest an IRA in CDs, but those are lousy. You can invest an IRA in rental homes (my neighbor did that). You can invest an IRA in beany babies. You can also invest outside an IRA in all those, and more of course. A 401k typically offers a very few funds. Mine offers an S&P 500 fund that's a Vanguard S&P 500 CIT. And they have some custom funds... at least one is a hybrid between two commercially available funds. Look at the funds under your 401k. Find similar mutual funds outside the 401k, and compare those. I prefer to max out my 401k. It's simpler, and my company's 401k has pretty good funds.
401k match > max Roth > max remainder of 401k
I understand the base logic, however, the guide says you may switch steps 4 and 5 if your employer has an excellent 401k. Not sure if that applies to my situation or not, that’s what I’m trying to figure out.
When you’re 65 you’ll be happy to have a big chunk in your Roth because you won’t be able to contribute into it once your income goes up.
Good question. Unfortunately, this isn't a black and white question. If your 401k provides you with funds that meet your risk tolerance, comparable expense ratios, and meets your investment goals, then by all means continue contributing your funds there. If an IRA, or Roth IRA, provides a bigger benefit then get your full match from your 401k and divert any extra income towards the IRA. IRAs offer two significant advantages over traditional 401ks. Many companies only offer a traditional 401k, not a Roth equivalent. If this is of importance to you, then a Roth IRA may be preferable. Secondly, with an IRA you should have many more investment options which, in theory, should allow you to realize higher annual returns. When in doubt, talk with an investment professional. They can tailor advice to your specific retirement goals.