My company matches 3 or 4% going into 401k, so I do that, and it is the only retirement or investment thing I have other than just a savings.
I keep hearing about Roth IRAs, which the company that does my 401k offers (Fidelity).
Anyway, what is the difference?
Does it make more money for you?

401ks are retirement accounts funded by you AND your employer through automatic or matching contributions.
IRAs, Roth and traditional, are entirely self-funded.

The general rule of thumb is to at least contribute enough to a 401k to get as much matching  money as possible.  That is an automatic, instant return on investment that, if not taken, is gone forever.  After that, you have to decide on whether your 401k options are appropriate for your situation.  IRA investment options are almost unlimited.  Your 401k options come from a very small list from your employer's plan.  Some are better than others.

I learned a lot from Bogleheads.

In the simplest of terms, it comes down to the tax treatment each receives. They are both like a bus that carries your individual investment assets (stocks, bonds, mutual funds etc.), not as some people confuse them with, a specific investment in and of themselves.

The 401k has PRE-TAX money in it that is used via the usual internal money market fund (think wallet) to buy specific investments. You pay taxes on the growth and earnings when you withdraw money from it during your retirement years.

A Roth IRA is funded with AFTER TAX money and you do not pay taxes on growth and earnings when you begin to withdraw funds in retirement. There are a few conditions attached to the Roth that can create a taxable event/penalty in the event of early withdrawals, but they are generally rare.

I was a trader for Fidelity in the early 2000's and did a lot of retirement planning. Their website used to be one of the best in the industry for detailing all of this info. Don't know about it now. IM me if you have any questions.

With a Roth, you are not required to take anything out at age 701/2 and can leave it to your kids if you want.

A 401K is an employer sponsored plan, contributions are made by yourself and your employer. Contributions can be pre-tax(traditional) or post-tax(roth) depending on your contribution elections. Investments are limited to those your company negotiated with the plan provider; typically mutual funds or company stock. Some 401Ks offer a feature that allows you to use funds in the account like it was a brokerage account and give you a lot more investment options (individual stocks/etfs) but still limited. 401Ks have contribution limits of $18,000 (plus an additional $6,000 after age 50).

A Roth IRA is a post-tax Individual Retirement Account funded exclusively by the individual. IRAs have seemingly limitless investment options, very few things you can't invest in. With a Roth, contributions are taxed in the year contributed. If you contribute the maximum ($5,500, unless 50 or older then $6,500) that amount is added to your earned income that year and taxed at that rate. Your investments then grow and can be distributed without having to pay taxes. A Roth allows you to withdraw any funds you have contributed at any time, and earnings withdrawn before age 59 1/2 are subject to a 10% early withdraw penalty and taxes. Since you have already paid taxes on the investments, you are not required to withdraw the funds after age 70 1/2 like you are with pre-tax contributions. Roth IRAs have limits on who can contribute based on income level, however you can easily get around this by doing "backdoor" conversions from a traditional IRA without repercussion.

note that if your 401k is administered by Fidelity, you likely have access to their scheme called "BrokerageLink", which is a brokerage trading subaccount *within* your 401k.  inside that subaccount you can buy/sell practically any available market security -- stocks, bonds, stock funds, bond funds, CD's, ETF's, commodity ETF's, etc etc etc.  the only general limitation is that you can't sell short within the 401k BrokerageLink subaccount, for the obvious reason that there is no way to backstop a short position margin call with additional funds.  in effect this means that all of the typical securities you might purchase within an IRA are also available within your 401k.

ask your 401k plan administrator or Fidelity about the BrokerageLink option in your account.  you will have to sign (or e-sign) a form with Fidelity that you understand that the range of investment options available using BrokerageLink is increased beyond those in your 401k plan's general options, and that you understand that with the potential of more reward comes the potential of more risk.

ar-jedi

in general your long term investments will be broken down into two separate buckets:
1) tax-advantaged
2) taxable

what's the difference, and why do you care?

tax-advantaged vehicles (including IRAs of all types, 401k/403b plans, TSP, etc) provide some insulation from taxes -- either now or later. there are certain types of vehicles that allow you to defer taxes until after you retire, which usually means you will be paying taxes when you are in a lower tax bracket. moreover, there are other certain types of vehicles that allow you to pay taxes up front and never again.

taxable vehicles are generic investment accounts (which include brokerage accounts holding a variety of instruments) are exposed in the sense that the IRS is going to take their cut every year -- either in terms of capital gains (e.g., from the profit on a stock sale) or ordinary dividends (from holding bonds or CD's).

which one is better? neither. you will not be able to avoid having both. contributions to tax-advantaged vehicles are limited by IRS rules to prevent them from being tax havens for the 1%. for example, the 2016 IRA contribution limit is US$5500. what if you have more than that to put into long term investment? the overflow goes into taxable vehicles.

in general, you will want to contribute to tax-advantaged vehicles first, and then into taxable vehicles.

an IRA (Roth or Traditional) is a container, aka an account, not an investment per se. you place money, which are called contributions, into an IRA and then you choose what investment(s) that money should be directed into. such investments include stocks, bonds, mutual funds (like and S&P 500 index fund), and so on. "cash" is also one possible type of investment, in this case it is held in a money market fund.

summary:
IRAs, 401k's, 403b's, brokerage account, etc --> containers, like a juice glass.
mutual funds, stocks, bonds, etc, --> investments that go into the containers, like orange juice.

as is the case with most folks, you will find yourself with two or more accounts -- some taxable (like your savings and brokerage account) and some tax-advantaged (like your 401k and/or IRA). in general, to lessen your tax burden during your working years you will want to place income producing securities (like dividend producing stocks, taxable bonds, and REITS) inside your tax-advantaged account, and place common stocks and ETFs in your taxable account. this is all part of a strategy called "asset allocation", which has been shown to be THE major contributor to investment success.

for more information, here are the only three investing texts that you will ever have to read:

The Four Pillars of Investing, by William Bernstein
The Bogleheads Guide to Investing, by Taylor Larimore et al
All About Asset Allocation, by Richard Ferri

with those three books under your belt, you will be ahead of 99.99% of all long term investors. these texts are straightforward to read and designed for normal folks -- they are not math books.

ar-jedi

you are welcome.

ar-jedi