Comparing IRA vs 401K's rate-of-return with dollar cost averaging
"Google Docs spreadsheets have a function for filling in stock and fund prices.  You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance(""symbol"", ""attribute"", ""start_date"", ""num_days|end_date"", ""interval"") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that." The number you are trying to calculate is called the Internal Rate of Return (IRR).  Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest).  All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)
The reason the article recommends a Roth 401k for those who have a long time until retirement is based on your salary, marginal tax rates, and effective tax rates and some assumptions. You want to contribute to Roth IRAs when your marginal tax rate now is better than your effective tax rate at the time of withdrawal.  That is most likely to be true when your salary is smaller (for you) and your salary is most likely to be smaller (compared to your future salaries) when you have more years until retirement. The article is presenting a rule of thumb.   It won't hold true for everyone in every situation. "Another option you might consider is rolling over some of that 401K balance into a self-directed IRA or Solo 401K, specifically one with ""checkbook privileges"". That would permit you to invest directly in a property via your IRA/401K money without it being a loan, and preserving the tax benefits. (You may not be able to roll over from your current employer's 401K while still employed.)  That said, regarding your argument that your loan is ""paying interest to yourself"", while that is technically true, that neglects the opportunity cost -- that money could potentially be earning a much higher (and tax-free) return if it remains in the 401K account than if you take it out and slowly repay it at a modest interest rate. Real Estate can be a great way to diversify, build wealth, and generate income, but a company match and tax-free growth via an employee sponsored retirement account can be a pretty sweet deal too (I actually recently wrote about comparing returns from having a tenant pay your mortgage on a rental property vs. saving in a retirement account on my blog -- in short, tax-free stock-market level returns are pretty compelling, even when someone else is paying your mortage). Before taking rather big steps like borrowing from a 401K or buying a rental property, you might also explore other ways to gain some experience with real estate investing, such as the new crop of REITs open to all investors under SEC Reg A+, some with minimums of $500 or less. In my own experience, there are two main camps of real estate investors: (1) those that love the diversification and income, but have zero interest in active management, and (2) those that really enjoy real estate as a lifestyle and avocation, happy to deal with tenant screening and contractors, etc. You'll want to be careful to be sure which camp you're in before signing on to active investment in a specific property." Is there any benefit to investing in a Roth 401(k) plan, as opposed to a Roth IRA?  They have separate contribution limits, so how much you contribute to one does not change the amount you can contribute to the other.  Which is relevant to your question because you said  the earnings on that account compounded over the next 40 years growing tax-free will be much higher than what I'd save on current taxes on a traditional 401(k).   This is only true if you max out your contribution limits.  If you start with the same amount of money and have the same marginal tax rate in both years, it doesn't matter which one you pick.   Start with $10,000 to invest.  With the traditional, you can invest all $10,000.  With the Roth, you pay taxes on it and then invest it.  Let's assume a tax rate of 25%.  So invest $7500.   Let's assume that you invest either amount long enough to double four times (forty years at 7% return after inflation is about right).  So the traditional has $160,000 and the Roth has $120,000.   Now you withdraw them.  For simplicity's sake, we'll pretend it's all one year.  It's probably over several years, but the math is easier in a single year.  With the Roth, you have $120,000.  With the traditional, you have to pay tax.  Again, let's assume 25%.  So that's $40,000, leaving you with $120,000 from the traditional.  That is the same amount as the Roth!   So it would make sense to  If you can max out both, great.  You do that for forty years and your retirement will be as financially secure as you can make it.  If you can't max them out, the most important thing is the employer match.  That's free money.  Then you may prefer your Roth IRA to the 401k.   Note that you can also roll over your Roth 401k to a Roth IRA.  Then you can withdraw your contributions from the Roth IRA without penalty or additional tax.  Alternate source.   Beyond answering your question, I would still like to reiterate that Roth or traditional does not have a big effect on your investment unless you max them out or you have different tax rates now versus in retirement.  It may change other things.  For example, you can roll over a Roth 401k to a Roth IRA without paying taxes.  And the Roth IRA will act like it was contributed directly.  You have to check with your employer what their rollover rules are.  They may allow it any time or only at employment separation (when you leave the job).   If you do max out your Roth accounts, then they will perform better than the traditional accounts at the same nominal contribution.  This is because they are tax free while your returns in the other accounts will have to pay taxes. But it doesn't matter until you hit the limits.  Until then, you could just invest the tax savings of the traditional as well as the money you could invest in a Roth. Are you obligated to do what they ask? Probably not, with one big caveat discussed below. Your employer sent your money and their money after every paycheck to the 401K management company. Then after a while the 401K management company followed your instructions to roll it over into an IRA. Now the IRA management company has it. Pulling it out of the IRA would be very hard, and the IRA company would be required to report it to the IRS as a withdraw. Here is the caveat. If the extra funds you put in allowed you to exceed the annual contribution amount set by the law, or if it allowed you to put more than 100% of your income into the fund, then this would be an excess contribution, and you and your employer would have to resolve or face the excess contribution penalties. Though if the 401K company and HR allowed you to exceed the annual limit they have a much more complex problem with their payroll system. The bigger concern is why they want you to pull out your $27.50 and their $27.50. Unless you were hitting the maximum limit, your $27.50 could have been invested by adjusting the percentage taken out of each check.  You could have picked a percentage to reach a goal. That money is yours because you contributed it and unless you exceed the IRS set limits it is still pre-tax retirement money. The return of matching funds may be harder to calculate. The returns for 2013 were very good. Each $1.06 of matching funds each paycheck purchased a fraction of some investment. That investment went up and down, ok mostly up, if it was invested in the broad market. I guess you should be glad they aren't asking for more due to the increase in value.  It would be very hard to calculate what happened if you have moved it around since then. Which of course you did when you moved it into an IRA. If the average employee was also given a $55 gift last year, then the suggestion to the employer is that the tax complexity you and your fellow employees face would exceed the cost of the extra funds. They should chalk it up to an expensive lesson and move on. There is no typical return for an IRA. Understand that an IRA is not an investment type, it is just an account that gets special tax treatment by the Federal Government. The money in the IRA could be invested in almost anything including Gold, Stocks, Bonds, Cash, CDs, etc. So the question as phrased isn't exactly meaningful. It is kind of like asking what is the typical price of things if I use $10 bills. As for a 10.6% annualized return on your portfolio. That's not a bad return. At that rate you will double your investment (with compounding) every 7.2 years. Again, however, some context is needed. You can really only evaluate investment returns with your risk profile in mind. If you are invested in super safe investments like CDs, that is an absolutely incredible return. You compare it to several indexes, which is a good way to do it if you are investing in the types of investments tracked by those indexes. You are missing something very significant. The money in a traditional IRA (specifically, a deductible traditional IRA; there is not really any reason to keep a nondeductible traditional IRA anymore) is pre-tax. That means when you pay tax on it when you take it out, you are paying tax on it for the first time. If you take ordinary money to invest it in stocks, and then pay capital gains tax on it when you take it out, that is post-tax money to begin with -- meaning that you have already paid (income) tax on it once. Then you have to pay tax again on the time-value growth of that money (i.e. that growth is earned from money that is already taxed). That means you are effectively paying tax twice on part of that money. If that doesn't make sense to you, and you think that interest, capital gains, etc. is the first time you're paying tax on the money because it's growth, then you have a very simplistic view of money. There's something called time value of money, which means that a certain amount of money is equivalent to a greater amount of money in the future. If you invest $100 now and end up with $150 in the future, that $150 in the future is effectively the same money as the $100 now. Let's consider a few examples. Let's say you have $1000 of pre-tax income you want to invest and withdraw a certain period of time later in retirement. Let's say you have an investment that grows 100% over this period of time. And let's say that your tax rate now and in the future is 25% (and for simplicity, assume that all income is taxed at that rate instead of the tax bracket system). And capital gains tax is 15%. You see a few things: Traditional IRA and Roth IRA are equivalent if the tax rates are the same. This is because, in both cases, you pay tax one time on the money (the only difference between paying tax now and later is the tax rate). It doesn't matter that you're paying tax only on the principal for the Roth and on the principal plus earnings for Traditional, because the principal now is equivalent to the principal plus earnings in the future. And you also see that investing money outside fares worse than both of them. That is because you are paying tax on the money once plus some more. When you compare it against the Roth IRA, the disadvantage is obvious -- in both cases you pay income tax on the principal, but for Roth IRA you pay nothing on the earnings, whereas for the outside stock, you pay some tax on the earnings. What may be less obvious is it is equally disadvantageous compared to a Traditional IRA; Traditional and Roth IRA are equivalent in this comparison. 401(k)s and IRAs have a fundamental tax benefit compared to normal money investment, because they allow money to be taxed only one time. No matter how low the capital gains tax rate it, it is still worse because it is a tax on time-value growth from money that is already taxed. "Before anything, I see that no one mentioned the one thing about 401(k) accounts that's just shy of magic - The matching deposit. In 2015, 42% of companies offered a dollar for dollar match on deposits. Can't beat that.  (Note - to respond to Xalorous' comment, the $18K OP deposits can be nearly any percent of his income. The typical match is 'up to' 6% of gross income. If that's the case, the 401(k) deposits are doubled. But say he makes $100K. The $18K deposit will see a $6K match. This adds a layer of complexity to the answer that I preferred to avoid, as I show with no match at all, and no change in tax brackets, the deferral alone shows value to the investor.) On to the main answer - Let's pull out a spreadsheet -  We start with $10,000, and assume the 25% bracket. This gives a choice of $10,000 in the 401(k) or $7500 in the taxable account. Next, let 20 years pass, with 10% return each year. The 401(k) sees the full 10% and after 20 years, $67K. The taxable account owner waits to get the 15% cap gain rate and adjusts portfolio, thus seeing an 8.5% return each year and carrying no ongoing gains. After 20 years of 8.5% returns, he has $38K net. The 401(k) owner on withdrawal pays the 25% tax and has $50K, still more than 25% more money that the taxable account. Because transactions within the account were all tax deferred.  EDIT - With respect to davmp's comment, I'll offer the other extreme -  In his comment, he (rightly) objected that I chose to trade every year, although I did assign the long term 15% cap gain rate, he felt the annual trade was my attempt to game the analysis. Above, I offer his extreme case, a 10% return each year, no trade, no dividend. Just a cap gain at the end. The 401(k) still wins. I also left the tax (on the 401(k)) at withdrawal at 25%, when in fact, much, if not all will be taxed at 15% or lower, which would put the net at $57K or 30% above the taxable account final withdrawal.  The next issue I'd bring up is that the 401(k) is taken out at the top (marginal) tax rate, e.g. a single filer with taxable income over $37,650 (in 2016) would save 25% on that 401(k) deduction. Of course if the deduction pulls you under that line, I'd go Roth or taxable. But, withdrawals start at zero. Today, a single retiree has a standard deduction ($4050) and exemption ($6300) for a total $10,350 ""zero bracket"" with the next $9275 taxed at 10%. This points to needing $500K in pre tax accounts before withdrawals each year would get you past the 10% bracket. (This comes from the suggestion of using 4% as an annual withdrawal rate).  Last - the tax discussion has 2 major points in time, deposit and withdrawal, of course. But, the answers here all ignore all the time in between.  In between, you see that for any number of reasons, you'll drop from the 25% bracket to 15% that year. That's the time to convert a bit of money to Roth and 'top off' the 15% bracket. It can happen due to job loss, marriage with new spouse either not working or having lower income, new baby, house purchase, etc.  Or in-between, a disability put you out of work. That permits you to take money out with no penalty, and little chance of paying even the 25% that you paid going in. This, from personal experience with a family member, funded a 401(k) with 28% money. Then divorced and disabled, able to take the $10K/yr to supplement worker's comp (non taxed) income." The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.