I have found them useful, particularly if there is a match. I do concur that most 401K/ProfitShare setups in companies have very bad selections. The company I used to work for was such a company, but we also had a group of employees who were active personal investors. We pressured the company and the 401K provider (Prudential) for better selections and eventually got it.
The company managing the 401K started pushing automatic rebalancing and target date funds. What people don’t know about both of these is that every time your account gets ‘touched’ by rebalancing, reallocation, transactions, etc – they get to charge a fee (hidden) on top of the standard management fee (I guess you could call it touch labor costs). On one of the meetings pushing these options, three of the company’s investment club members were also at the meeting and the rep got ‘cross examined’ by them. The only way to keep the 401K offerings at the company honest is to be a little militant about it. Usually the selections for what is offered is pushed down to HR from the 401K management company. The HR staff involved are generally not active or knowledgeable investors – so they just accept what the 401K management company offers.
On target date funds, I would generally be careful. I mapped the return of a 30 yr target date fund vs the ones I had selected over a few years and the target date fund royally sucked.
When I was laid off, I rolled all of my 401K funds into a self directed account at a discount brokerage – this was when I was 48 (completely legal, and I would recommend for the knowledgeable)
I would recommend a Roth for those who are within the income threshold. I would be very careful on rolling over a standard 401K into a Roth because it gets taxed at your peak combined rate. If you roll over $500K and earn $100K/yr – the tax rate is on $600K for the year – don’t forget that marginal tax rate is the item you have to watch out for. By my calcs, rolling over a large 401K into a Roth actually causes more taxes overall and reduces possible gains (don’t forget that the taxes taken out on the roll over to a Roth could have been used for investments and gains)
I would also make discretionary retirement investments on a non tax deferred account.
As for tax effects of Roth, 401K, and ‘cash’ discretionary accounts – it depends upon how often you buy/sell stock.
