Hardship Withdrawal From IRA
With a 401(k), you are limited in when you can withdraw money, but there are exceptions that allow withdrawals due to hardship. With an IRA, there are generally no limits on when you can take a distribution, so there is no provision for an IRA hardship withdrawal.
However, there are certain expenses that allow you to take early distributions without paying any extra taxes; specifically, you do not have to pay the early distribution tax if you withdraw money from an IRA to fund higher education or to finance the purchase of your first home (up to $10,000). (Sections 72(t)(2)(E),(F)) of the tax code). You can also make a withdrawal without penalty if you will use the money to pay for unreimbursed medical expenses (but only if they exceed 7.5% of your adjust gross income), to pay the premiums on your medical insurance if you have received unemployment benefits for more than 12 weeks, or to pay back taxes after the IRA places a levy against the IRA.
Remember that with a Roth IRA, you are free to withdraw your money at any time and for any reason, with no justification required; while this is generally a bad idea (as you likely won't be able to replace the money, and may owe a penalty if you touch the earnings or any deductible contributions), it does mean that the money is available in an emergency.
Return on Invested Capital (ROIC)
Return on invested capital, or ROIC, is used to measure the historical performance of a company. It is a lagging indicator, which means that it gives information on how a company has performed in the past rather than how it will perform in the future; however, it is not as easy to manipulate as many leading indicators such as discounted cash flow.
ROIC can be calculated simply as net income after taxes (that is, after tax earnings), divided by invested capital. A high number indicates that the company is using its invested capital efficiently, which suggests that it is likely to continue to grow. However, this is by no means a fullproof measure; for example, it is possible that the return came from one-time events rather than ongoing operations.
401(k) with ETFs: Good Combination or Bad Idea?
You may or may not be familiar with ETFs, or exchange-traded funds. ETFs are similar to stocks, and are actually traded on stock exchanges. An ETF is basically a basket that holds a collection of assets for you to invest in, such as stocks, bonds, and commodities. The price of the ETF is approximately the same as the value of its assets. Many investors find ETFs attractive because they are not actively managed and thus have lower costs than other investment products. They also tend to have fairly low capital gains, making them efficient for taxation purposes.
The question is, should you be holding ETFs in your retirement plans? At the start of 2010, about $4 billion in 401(k) assets was in the form of ETFs, so a lot of people seem to think so.
The extremely low expense ratios offered by exchange traded funds can definitely make them an attractive choice; lowering fees can dramatically impact your return on investment over the long run. They also allow you to diversify without the hassle of choosing stocks or funds yourself.
However, ETFs are often used for timing the market, which is at odds with the buy and hold strategy appropriate for retirement funds. Additionally, because 401(k) and IRA plans are already tax-advantaged, the tax benefits of an ETC don't apply.
So should you use an ETF in your 401(k)? As with many financial questions, the answer is: it depends. If you want to actively manage your portfolio - for example, investing in commodities without the hassle of taking possession, or making sure that you don't have multiple holdings that are invested in the same company - ETFs can give you the control you seek. If you tend to be a hands-off investor, however, the standard mutual funds offered by your company's plan may be just fine for you.