My employer doesn't match 401(k) contributions. Why should I bother with a 401(k) then? No free money sux

Question

I can just invest on my own in mutual funds or the like for retirement. 401(k) seems to be a waster without any employer matching. Thanks.

Answer 1

Match or no match you have a responsibility to yourself to save for retirement and a 401(k) is a great way to do that. Not only does it put away money for tomorrow it helps you not pay as much payroll tax on each paycheck. Be wise and save save save. In addition happens automatically, if you decide to invest on your own you need dicipline and more than a paycheck contribution to get started.

Answer 2

Everyone has great answers. Investment Banker here who would max out the 401(k) before even thinking of other types of investments for a couple of reasons.

1. Your employer typically picks up the fee to maintain your account. The also pay a vendor a great deal of money for recordkeeping your account etc..
2. The investment options inside a 401(k) are typically institutionally priced and lower fund level expense (money management fees, and other implicit fees). If you invest outside the 401(k) plan you would not only loose the tax break, but pay higher fees, as you purchase retail shares vs. instituonal trust shares. You also pick up any other charges to open and maintain the account.

Any fees will ALWAYS impact overall fund performnace. Think lower fees means more money in your pocket at retirement.

3. Keep in mind that this is for your retirement and if money goes into the 401(k) plan it has restrictions and becomes almost illliquid. There are a few exceptions to this, such as if the employer allows 401(k) loans (they don't have to allow it).

Otherwise the money is illliquid unless you die, become divorced (only liquid to alternate payee ex spouse if they are awarded a portion), disibility, first time home purchase, medical expenses for dependants, and certain financial hardships.

Bottom line ... sign up for the 401(k) as you will be glad you did over the long haul.

Answer 3

The biggest benefit of the 401K of course is tax deferred growth of present day pre-tax dollars.

As a financial advisor for a large brokerage firm, this is what I recommend to most of my clients, family and friends.

1. Contribute to your 401K up to the amount needed to capture the maximum employer match.

2. After capturing the company match, max out a Roth IRA if possible (after tax dollars). While you don't get a present day deduction, the prospect of completely tax free returns down the road are a very good thing. The key here is that your income doesn't exceed certain thresholds (95K single, 150K married to make max contribution).

3. If you have money left over, max out your 401 (15K limit a yr).

4. if you still have more cash sitting around, then open up a brokerage account.

Also, don't forget to build up an emergency rainy day fund sufficient for 3-6 months of expenses. A high yielding money market fund is usually most approp for this ( ie: emigrant direct at 5.05%).


Hope this helps.

Bottomline, there are times when investing in a company 401K makes sense despite not having a match.

Answer 4

It reduces the amount of income tax today.
If the mutual fund within your 401(k) declares a capital gains distribution, you don't have to pay tax on it now.

Tax sux. Check out what fund families your 401(k) offers, and max your 401(k).

Answer 5

You need a "retirement plan", so either a 401k or an IRA. If you salary is > say $50,000 you cant totally deduct the IRA but you can Deduct the 401k. I need the deductions, so I fund my 401k very agressively. I dont fund an IRA any more, since I cant deduct it. I dont have a Roth at this time, I am pretty sure my taxes will go down in the future when I have no income other than retirement.

Answer 6

Your contributions are taken out before taxes, thereby increasing your take home pay. Also the increases in value from your 401(K) investments grow tax exempt.

Answer 7

You won't receive more as it will automatically stop contributing (otherwise you would have to back pay the taxes, but its up to your employer to stop it). I put a huge % into my 401K, so it fills up quick and then my check goes higher later in the year once it maxes out.