Hi, my name is Bob Brooks, you know here at the prudent money channel, one of the things we want to do is provide you resources and make this a little bit more interactive. I want to tell you about a resource that if you go to triple W dot prudent money calm, there is a section called the Ask Bob section, you go there, you can send in a question I do answer all of these emails, it doesn't go into some black hole, you actually do get it answered. I've been doing this for pretty money listeners on my radio show since 2002. And offering it as a resource. In fact, at one point, we'd figured that I'd answered over 15,000 emails, I take it very seriously. And you can use that as a resource for you.

Once again, it's at triple W dot prudent money.com. We had a guy an email come in, I wanted to talk about it. In fact, we may actually be talking about some of your emails if you send them in. Dear Bob, my employer is pushing new hires into the company sponsored 401k plan. I'm not so sure I want to participate. What are the pros and cons of the 401 k?

Plan signed bill P. That was it prudent money calm. You know, it's really interesting and I think that that's a that's an important question one that's not really asked because, you know the Think about the 401k plan, you're expected to invest into it. It's conventional wisdom. I don't know about you, but I challenge I tend to challenge conventional wisdom to make sure it's conventional for me. And so it but it is conventional wisdom, it's convenient, it just comes right out of your paycheck. It supports the pop culture financial belief of just save, you know, it drives me crazy about this is that is that the fight in the financial media wants you to believe that all you have to do a save 15% a year and you're going to retire just fine.

And as you know, I'm a listener and watcher of these videos, that it takes way more than just saving money. The emphasis is on so many more things. But then there's the free money concept where you get a an employer match, and which is the bet really the best attribute of a 401k plan. But it I have to tell you though, is The 401k plan is not the best alternative in all cases. I know that kind of bucks the system a little bit. But here's the thing, if you want if you're picking one account to accumulate the majority of your wealth, wouldn't you want to be picking the right account, giving you the most benefit, not just doing it because someone said to do it.

While you might want to think twice about a 401k plan, first of all investment choices limited. I've looked at many 401k plans throughout my career. And what I find are plans that have very limited choice of stock funds and bond funds. And really, that's all they've got is stock funds and bond funds. You're not going to find any alternative investments in a 401k in most cases, and then I've talked about on other videos about the risk level of the fund, where it makes sense to be in what's called lower beta funds, lower risk funds, you don't really see that much difference. Everything is pretty much market oriented, so you don't have much choice.

That's one of the biggest hang ups that I have with 401k plans. No employer match, if they're not willing to give you free money, I wouldn't even participate. And that's just me I'm not telling you not to but I if because that is the main the key benefit of a 401k plan is that free match. Now if they're going to give you dollar for dollar up to 5% of your contribution, then I would take that sheet that's automatic return on your money. In fact kind of how I balanced that out as I always say, take the employer match up to the point that they stopped giving it and then look elsewhere. We'll talk about where you go to invest your money.

And then there's a limited flexibility they really just mean the 401k plan is for a buy and hold investor now you know we talked about buy and hold investing is that works not but not all the time. There's times when the market gets in trouble when you need a plan B so it makes sense to have a plan a and a plan B it's tough to do that in a 401k plan and then there's cost. Now this isn't as big of a deal as it used to be. cut these 401k plans were very expensive all the expenses were built into the plan, and so you never really knew what you were spending. Now today, you're seeing lower costs, but that it is still somewhat of a problem in some plans are outdated. But here's the benefits from outside investing.

Now I'm asking you to think out of the box, I'm asking you to consider first of all is your 401k really worth it? And number two, what other alternatives are there? First of all choice, you have unlimited choice in an outside investment account away from a 401k plan. You've got all kinds of different types of all kinds of different types of mutual funds, stocks, exchange traded funds, you name it, it's there for you to invest into so you can really customize towards your risk level and your goals. Second is strategy you have all types of strategies available to you as well but you don't have a 401k plan. You have professional help you have you can have an advisor actively managed from a plan a plan B standpoint, and then cost you get to sign off on the on the amount of cost That your investments are being charged against you.

So you can see if you're going to be accumulating money, wouldn't you want to have all these benefits in your overall investment strategy? Now, what are those other options? options? What are those outside accounts? Well, you have the IRA and the Roth IRA. Now, I'm a big fan of the Roth IRA more so than I am the IRA.

Both of these are considered alternative retirement accounts. And really, those are the kind of the go to accounts if you don't have access to a 401k plan. But with a Roth IRA, you get a much bigger tax advantage than you do with an IRA. Let's start with an IRA, you put that money in on an annual basis, that money that you invest into the IRA is tax deductible, you don't pay taxes on that money, and then the money grows without you paying taxes. Then at the very end, when you take money out of the IRA, that's when you pay taxes on the full amount versus the Roth IRA. You don't get that tax break up front because you're using it After tax dollars, but that money grows over time.

And then when you take that money out, guess what it comes out tax free. So let me give you a scenario, you have a half a million dollars in an IRA, a half a million dollars in a Roth, you start you take out $100,000 out of the Roth, it comes out tax free, you get the full hundred thousand dollars out of an IRA, you might get 75 $70,000 because you got to pay taxes, which one seems a little bit more appealing? Probably the Roth IRA, I would think and, you know, you're so you're missing out on a little bit of a tax to tax deduction along the way, that is nothing compared to the tax benefit of accumulation in a Roth IRA. So that's the kind of the first place I would go is investing in one at least one of those counts then but there's a limit to the amount of money that you can put into it, then I would go to a taxable investment account.

And yeah, what I see is people kind of shy away from this because they see the word taxable meaning I'm gonna have to pay taxes along the way. taxes, I always say that taxes shouldn't be a big factor and you just deciding on what to do that the benefits from these outside investments are really what you should be focusing on. So is investing in a 401k plan, always a good idea? It's not always as important to make sure that the main account that you're accumulating your wealth in over time is the right account for you.