| 401ks can be rolled over to IRAs. They can also (often? always?) be rolled over to another 401k when you change jobs. If you get matching, contribute at least that much to your 401k. Then max out your IRA (greater freedom in investing). Then work on maxing out your 401k. Many people point to the tax-free nature of these. Traditional 401k and Traditional IRA means you don't pay taxes now, but are taxed on the distributions in retirement (treated as income, not capital gains). Roth versions of both mean you pay taxes now on the contributions, but not in retirement on the distributions. The (to me) much greater benefit of all four options is tax free growth. My Roth IRA is a standard brokerage account. Let's go through a scenario, two ways: invest in a standard brokerage, invest in any kind of 401k or IRA. If you invest $10k in a standard brokerage, wait some time, and sell at $15k for a profit of $5k, you owe taxes (income if less than a year, capital gains if more than a year). Let's assume capital gains (15%), you only have $14,250 to reinvest ($750 paid in taxes). Every time you sell you lose a bit of your profit. If you invest that same $10k in an IRA or 401k, make the same profit in the same time and sell (in the 401k you don't sell, but rather move to a different fund, concept is the same), you owe no taxes at that point. You have the full $15k to reinvest. Losing 15% (or more if it's a short term investment) of all earnings seriously eats away at your retirement savings if the money is in a standard brokerage. Similarly, you lose some percentage of all dividends earned in a standard brokerage. So your 1-4% dividend yield is really more like .75-3% after taxes. All things being equal, your money will grow faster in a 401k or IRA. If the intention is to leave the money alone (not spend it, but probably tweak investments) until age 60 or higher, invest in these accounts. |
I can think of no good reason to ever roll a 401K to another employer instead of rolling it over to a usually much lower cost IRA.