I talked to the investment advisor at Fifth and Third, and he was explaining the three types to mutual funds: slow, conservative and aggressive.
They all sound kind of risky, and I can say I really trust the system.
Can anyone here recommended one or the other or should I just put everything in 401K?

401K has tax benefits.

I put the max amount my employer will match in my 401K and anything else in an IRA.

Maximize your 401K...it is tax free.  If you have money left over open up a IRA.

You will still have to choose your investments in a 401(k).

Why?

Tax free growth

uh....You get a tax benefit right now but pay taxes when you withdraw

And I can withdraw the money without penalties if I get in a bind.

........what does a 401k invest in?

You also get free money with a plan that matches. There is no reason not to contribute to a matched contribution plan.

That's what the OP has to find out.

You can have a 401(k) plan that invests in mutual funds.

I would max out your 401K cointributions. 17,500 for this year. You could put it in one of those targeted retirement funds and dont worry about it.
then also max out your ira contribution of 5,500 through one of those online brokerage firms like etrade/tdameritrade/scottrade etc...

thats 23,000 savings per year

http://www.ar15.com/forums/f_1/133_Business_andamp__Investing.html

The benefit of your 401K is you get to take your contributions for the year out of your taxable income and also receive employer contributions. Your 401K will also have many options on how you want to invest it.....some of those being mutual funds.

You need to do more research and decide what kind of risk/tax profile you want and find a combination of investments to meet that goal

There are tax benefits and limits to 401ks and IRAs, so get both

IRA: annual contribution limit is $5500. Depending on traditional or Roth, it's either tax deductible now or tax free later.

401k: may have employer match, has tax deductible contributions like the traditional IRA, but a much higher contribution limit (something like $13k)

So the strategy is:

1) Contribute enough to 401k to get maximum match
2) Contribute $5500 to IRA to hit contribution limit
3) Contribute more to 401k to keep retirement savings tax deductible

Posted Via AR15.Com Mobile

 

This

Mutual funds or 401k? That's like asking should I buy a gun or a rifle

For 2015, the limit has been raised to $18,000





From IRS.gov.   http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401%28k%29-plans-in-2015


The elective deferral (contribution) limit for employees who participate
in 401(k), 403(b), most 457 plans, and the federal government’s Thrift
Savings Plan is increased from $17,500 to $18,000.
 
 

I thought a Roth IRA was subject to retirement penalties?

You can make penalty and tax free withdraws on contributed principal but not on earned interest before 59 1/2. After 59 1/2  you can withdrawal everything tax and penalty free

Read your 401k plan summary. All 401k's have different nuances to them.

1st off Op, using the bank broker is where you went wrong from the get go. Since the advisor is using a markowitz based investment philosophy I think you should research modern portfolio theory to make sure you aren't going to want to strangle the bank broker in a few years.

They are certain exemptions to the penalty free with drawls with qualified accounts, which is what 401k and IRA's are. There are some for 401k's but you need to contact your plan administer to see what they are.

By the way, mutual funds are investment vehicles, 401k and Ira's are accounts that fall under IRS guidelines for tax treatment. For what ever reason this fucks with people's minds until no end.

There is also a 5 year rule in there too. Along with a few exceptions.

No, you can't. 401ks are subject to a 10% early withdraw penalty and tax consequences as are IRA. The exception is the ROTH IRA which allows removal of contribution after 5 years.





 

Yeah, I am trying to keep it high level

Yes and No. Op if he is in a true bind may qualify for one of the exemptions.

From the horses mouth

He was referring to the Roth IRA, not 401K

edit, to make things more complicated

The "investment advisor" will likely try to sell you a mutual fund that provides him a nice fat commission.  

What do YOU think the economy will do?  First figure that out, and then invest accordingly.  

Put your money in one of the big Vanguard funds instead.  



A few questions to ask the "investment advisor":

- How long has he been an "investment advisor"?

- How has his recommended fund performed versus the Vanguard VEIPX fund.  

- How long must your money remain in that fund?  If you need it, you don't want to be surprised with a 6% redemption fee.  You can always move your money in/out of a Vanguard fund.  





 

My employer matches 6% of what I put in. I put in 12% so im getting close to 18% of my base pay in my 401k every year, thats not including profit sharing or other monies they decide to give me. The only problem I might have is vesting. I doubt I will stick around long enough to be fully vested in their plan.

based on what? risk return, sharpe ratio? The funds alpha? The funds gamma? What was VEIPX doing Feb of 2009? Sucking hind tit like the other markowitz models? Not that I like mutual funds, but there is more to investing than keeping your cost zero and buying and holding an index fund.

A 401K will have fewer investment choices than a IRA (regular or ROTH).

What you should do is max out your ROTH IRA (you buy with post-tax money, but the earnings are tax free) first, then go with 401K.

The advantages of a 401K is the employer match mostly.

A regular IRA is paid with pre-tax money, but you get taxed on the earnings when you take it out.

I have a 401K, Roth and Traditional IRA, and a stocks account.
I vote both prepare for no SS someday that is what I am doing.

If you plan on withdrawing it before you retire: funds, they IRS will rape you otherwise.

401k is the best for retirement since there are tax benefits involved.

I have no illusion that there will be no SS for me.

Mutual funds are compared by their returns.  If his advisor has a fund that's been returning more than VEIPX, it may be a good investment.  

You're right about all funds in Feb 2009.  That's why he needs to compare their returns.



 

You are comparing an investment type to a type of investment account. Sort of like asking which is better, a rifle or ammunition.

Account Types: 401k, Traditional IRA, Roth IRA, etc. -> Defines how investment is contained and taxes for contributions/withdrawals.
Investment Types: Mutual Funds, Stocks, Money Market (Savings Account, etc) -> Defines how a money grows due to how it is invested in which companies/markets, etc.

401k is an employed version of a Traditional IRA with some better rules regarding max contributions.
There is also a Roth 401k which is an employed version of a Roth IRA with some better rules regarding max contributions.

The big different between Traditional and Roth accounts are as follows:

Traditional (IRA and 401k): Contributions are pre-tax. Your tax bracket is reduced right now. The advantage is that you pay less taxes right now, the dis-advantage is that you pay more taxes overall because all of your contributions *AND* earnings are taxed. So if you put in 50k over 40 years and it grew to 1 million, you are going to pay taxes on 1 million when you withdraw. Additionally, since your contributions avoided taxes up front, if you try to take out any money early, you pay hefty penalties. (Usually 10% of the withdrawal, plus your income is increased by the withdrawn amount, which increases the taxes you pay on all of your other income that year). This type of account is usually desired by older investors who have less time to benefit from earnings and the immediate tax benefits from being in a higher tax bracket are obvious. Also Roth IRA's have a income cap of 150k-ish joint filers, at which point traditional is the only way to go.

Roth (IRA and 401k): Contributions are not tax deductible so you still pay taxes on them up front. The advantage of this is that you can withdraw anything you put into it at any time with zero tax penalties. You would only pay penalties if you pull out earnings. Additionally, when you retire, all withdrawals are tax-free (contributions and earnings). So if you put in 50k over 40 years and it grew to 1 million, you will only ever have paid taxes on the 50k, not the other 950k. Roth IRA's are generally superior for younger investors in lower tax brackets who stand to benefit more from the tax savings on long-term earnings than immediate tax savings on income.


The bottom line is that Roth IRA is generally the best option if you are under the income limit and have a number of years before retirement. It was a gift from the government as result of the finding that the savings rate in the country had dropped to 0%. The goal was to encourage more savings. It really is an amazing type of account that a lot of people don't realize they should have.

EDIT: also wanted to make it clear that once you have an account (Roth 401k, Traditional 401k, Roth IRA, Traditional IRA), you can invest in whatever you want (Stocks, Mutual Funds, Money Market, etc etc). The account defines the taxation rules, the investment determines how the money grows.

I think the Op really need to evaluate his risk tolerance. I can see it happening now. Op buys which ever fund, market corrects slightly, op is pissed and hates the market forever.

The Roth IRA was what I was referring to,not the 401k.   Sorry.    
I can borrow from my 401k penalty free though.  The interest is paid to myself.

This is the right answer.  a 401k is the least control of your money you'll ever have.  It also locks you into "buy and hold" strategy.  They will penalize you or freeze you account if you try to shelter your money on market dips.  

I think as more people wake up to this its going to be a dis-incentive for employers.  I put in up to the match because the match is free money.  I manage it the best I can under the shitty rules.  then I amass $30k or so and I start thinking of switching jobs just so I can roll it into an IRA.  Others got be thinking the same thing.

ETA: if you "Financial Adviser" makes a salary from an institution then you have a Relationship Manager and not a Financial Adviser.   Find someone who has 1. already made a lot of money in the market on his own and 2. charges you fees based on his performance.  Then you will have a true financial adviser.  

ETA2: mutual funds that 401k's typically invest in are laden with investing rules.  They take the elevator to the bottom on a down market because they can't break their declared holdings rules.  Of course they explain it away with dollar cost averaging...  

Just keep in mind what happens to that loan balance if you switch jobs, your company gets acquired or you are fired regarding the tax consequences of that outstanding loan balance.

Would you guys still recommend investing in a Roth IRA over a 401k if the 401k has no company match but a guaranteed (by law) 7% annual rate of return?

City of New York Tax Deferred Annuity.

That's just not sustainable.  I would be worried you'd end up like a Detroit Pensioner.  

How did I know it was going to be an annuity. You need to read the fine print of that contract. Are they going to make you anuitize it when you retire? Or is is 7% compounding on your money and you get to cash out 100% when it's said and done>? Is that % based off of some type of benchmark?  Backed by recently floated bonds I assume.

I noticed you live in Oregon, how are you getting access to that NYC annuity?

The other guy lives in OR, I live in NY.  The TDA isn't mine, but it belongs to somebody I know.  It's the "401k" type of plan that person is offered as a teacher.  There are other investment opportunities, including more aggressive ones, but they are able to "play it safe" and get a "guaranteed" 7% ROI.

You said 401k, that threw me off.

Your friend has a 403b, which in those especially school boards it is common to see annuities in them. The issue about that always is, while they may say  7%, the actual cash value and the amount you may receive as a monthly check are not always what you think they will be.

I am not trying to pick nits with 401k vs 403b but it does tend to make a difference as most of the 403b plans are administered by gov't or insurance companies.

There's no dividends paid out and no monthly checks, and there are tax penalties for pre-retirement withdrawal, although you can take a "loan" from it that has to be repaid within x years.

1. investment advisors make money stealing from you
2. they are used car salesman with a degree
3. the biggest non risk impact on your earnings is the fee structure
4. Vanguard. seriously just open a vanguard whole market fund or whatever they call it.
5. If your employer offers a match for a 401k max out the match first then consider the fee structure to decide what else to do.
6. Always go for a general market fund with the cheapest costs