In a recent article it was suggested to avoid maxing out investment into an IRA due to limited investment options. In my 401k, where my employer is going through Fidelity, there is a brokerage link option where the 401k contributions and company match can be contributed to self investment. It isn’t quite as flexible as my Roth IRA in that I couldn’t put money into REITs for instance, but most stocks I was picking which have come on advice here could be purchased individually.
So if a 401k has a brokerage link in addition to the common blended and monetary/stock fund mix, would it make sense to ignore the caveats about heavier investing in it? That with the understanding one can self brokerage the more generous contribution limits available…
Its the 401k that usually has limited investment choices. Brokerage trading within the 401k is uncommon because companies worry they might be sued for losses. The usual concern for brokerage in a 401k is high fees, but that is unlikely with Fidelity.
If you know what you are doing brokerage investing is fine.
I question your premise to avoid maxing out an IRA. You can choose your custodian and have many opportunities even real estate. Yes, Roth is a better choice if you qualify. Yes, if IRA contributions are deductible they can be attractive depending on future tax rates.
The advice I’ve always seen was to contribute to a 401k up to the limit that the company adds matching funds. If there is no match it makes more sense to go with an IRA or ROTH with a broker that provides the full range of investment choices.
I believe you reversed this/ Normally, 401K/403B accounts are more restricted on investment choices.
Like RH mentioned, it is often advised to put money into your 401K to the match level then add to your IRA to the max contribution level. Then go back to the 401K for additional contributions.
If the fee structure of the 401K is low, it can make sense to just go with the 401K contributions.
For most investing in IRA’s there are no buyer fees and the only sell fee is the SEC fee. I have read some 401K’s still charge buy/sell fees.
Your HR/Admin or the online info for your 401K should have the all the answers.
Does that help you?
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Unless the article’s author knows what your investment situation is (goals, years to retirement, current account value, retirement financial needs, etc.) and the author knows what options are available in your IRA, you should ignore the article.
Would you take a prescription drug if the prescriber did not know you age, sex, symptoms and results of a blood test?
Remember back before digital watches, even a broken watch was correct twice a day.
All that said, unless you have independent wealth or expect an early death, saving for retirement is almost always wise. If you just don’t know which or your 401K options is best, you need to provide some personal information, goals, etc.
Assuming that you are going to invest this money** whether or not you put it in the 401(k):
Where would you put your money otherwise? You need to compare the 401(k) plan expenses and tax advantages to the expenses and tax advantages of where you would otherwise put your investment dollars. Unless the article that you read told you to do that, it’s not giving you advice that is specific to your situation.
** If you weren’t going to invest the money if it’s not going to go into the 401(k), then put it in the 401(k). That’s the thing about 401(k)s - you never get a chance to do something other than invest the money, since it goes straight to the 401(k) account without going to your bank account first.
The 401k advantages should be mentioned. The employers match is free money. The large pretax contribution limit is attractive. But you money is taxed at ordinary incme tax rates in retirement. Long term buy and hold in a taxable account is taxed at capital gains rate if you do it successfully.