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Employer Sponsored 401k With No Match
Posted on 7/9/20 at 4:04 pm
Posted on 7/9/20 at 4:04 pm
Is there any point to be contributing to an 401k with no match by your employer? I recently started with a new company that has a 401k plan, but doesn't match any contributions. For convenience, I've rolled over my old 401k to Vanguard since I also have a Roth IRA and regular brokerage account with them. I max out the Roth in January every year.
Since I've started with the new company, I've just been adding my savings each month to my normal brokerage account. If we hit our budget, this amounts to about 25-30% of our take-home pay and I'm pretty diligent about moving this money over to the brokerage account each month. I'm hesitant to start contributing to the employer sponsored since it would cause me to have another account where I'm tracking my savings.
I know the obvious answer is the tax advantages from reducing your taxable income by contributing to the 401k instead of the brokerage account, but without an employer match is that enough to outweigh the convenience factor of having better control over my investments? I'm not tax savy enough to really know if I'm screwing myself here or not.
Since I've started with the new company, I've just been adding my savings each month to my normal brokerage account. If we hit our budget, this amounts to about 25-30% of our take-home pay and I'm pretty diligent about moving this money over to the brokerage account each month. I'm hesitant to start contributing to the employer sponsored since it would cause me to have another account where I'm tracking my savings.
I know the obvious answer is the tax advantages from reducing your taxable income by contributing to the 401k instead of the brokerage account, but without an employer match is that enough to outweigh the convenience factor of having better control over my investments? I'm not tax savy enough to really know if I'm screwing myself here or not.
4
Posted on 7/9/20 at 4:45 pm to wareagle47
quote:
tax advantages from reducing your taxable income by contributing to the 401k instead of the brokerage account, but without an employer match is that enough to outweigh the convenience factor of having better control over my investments?
I'll start by saying I'm not a professional.
Retirement accounts are protected from creditors should something happen that you ever owe a creditor (this includes lawsuits). Brokerage accounts are not.
I attempted a real wordy response but then just decided to give you a link to taxable vs tax deferred calculator from AARP's website. See where you fall on your current tax bracket and where you think you'll fall on retirement. If lower at retirement, tax-deferred accounts are king
If higher during retirement than working years (doubtful but still very possible. I would expect you to be reading Mr Money Mustache and not the Money Board), Roth tends to win out more dramatically. Both have the advantage of not paying anything on dividends which will eat away at the compounding of a brokerage account vs these options.
LINK
In short:
Unless your 401k options really suck and you can't find anything that resembles what you are planning on doing, you're probably better off in an unmatched retirement account than a brokerage account. Whether that difference is worth the headache is you, but the math tends to favor workplace ones.
Posted on 7/9/20 at 5:26 pm to wareagle47
does your employers 401K have a Roth option?
Posted on 7/9/20 at 6:18 pm to wareagle47
Need to check as I may be wrong, but I think you can put more money into a 401k vs an IRA account. IRA could give you more flexibility in investment options but have lower limits on contributions. May be possible to have both as long as limits are observed
Posted on 7/9/20 at 6:50 pm to wareagle47
quote:
I know the obvious answer is the tax advantages from reducing your taxable income by contributing to the 401k instead of the brokerage account, but without an employer match is that enough to outweigh the convenience factor of having better control over my investments
Depending on what you make, those tax savings are going to be 20-30 something percent.
You going to have a return equal to or greater than that ever year? I doubt it.
This post was edited on 7/9/20 at 6:51 pm
Posted on 7/9/20 at 9:50 pm to Teddy Ruxpin
quote:
Depending on what you make, those tax savings are going to be 20-30 something percent.
You going to have a return equal to or greater than that ever year? I doubt it
This is kind of what I was looking for. I doubt my return would make up that difference since I still manage it pretty passively. I'm not opposed to going the 401k route. Just trying to get a feel for what I am giving up for the convenience factor.
Posted on 7/10/20 at 7:29 am to wareagle47
I do get a match.
But I do the 401k maxed out and put my tax refund to a Roth for my wife (part time with no benefits).
The whole point of the tax deferral is an immediate benefit on this year's taxes. If you spend the refund on home improvement, debt, or vacations, then there is still a benefit to the 401k. Just no benefit as an investor. And your advice as an investor in this situation should be to go Roth.
My wife and I have been disciplined enough to max out the 401k and to throw the benefits to her Roth each year. Is that better than Roth only when we take out? We wont know until we see our future tax bracket. But it sure does feel good to be putting an extra 25% investment each year for the past 15 years.
But I do the 401k maxed out and put my tax refund to a Roth for my wife (part time with no benefits).
The whole point of the tax deferral is an immediate benefit on this year's taxes. If you spend the refund on home improvement, debt, or vacations, then there is still a benefit to the 401k. Just no benefit as an investor. And your advice as an investor in this situation should be to go Roth.
My wife and I have been disciplined enough to max out the 401k and to throw the benefits to her Roth each year. Is that better than Roth only when we take out? We wont know until we see our future tax bracket. But it sure does feel good to be putting an extra 25% investment each year for the past 15 years.
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