• http://www.rothira.com/ Kevin@RothIRA

    Hi David, you’ve raised excellent points on the advantages of the Roth IRA, but I’d like to highlight an example of where they (and traditional IRAs as well) might be a better choice then 401Ks.

    Typically, the best point in favor of the 401K is the employer match–the 401K is hands down the better choice because of it. But there’s a sticky issue with 401Ks called “vesting”. Even if the company does match funds (and many are no longer doing this), you will have to wait (typically five years) before you’re fully vested. Many people don’t keep their jobs that long any more. And for people in the 20s it’s almost a given that they’ll be gone in far less time. End result: the match becomes something of an illusion.

    IRAs, both traditonal and Roth, are closer to pure plays–you know what you’ve got and you’re in control.

    • David Young (author)

      Kevin, thanks for your comment. You’re right, company 401Ks may not be the best choice if there’s a long-term vesting on matches–that said, though, a vesting period longer than 24 months on a company match is a rarity (my ex-employer had immediate vesting on matches). FIVE YEARS IS NOT THE NORM. Full disclosure, Kevin, your link points to an ‘informational’ site that emphasizes the benefits of IRAs. Wouldn’t have a commercial motive here, would we? ;-)