Company does not match 401k contributions & does not have a Roth401k. What to do?

Question

What else can I do to improve retirement planning considering my employeer doesn't offer anything helpful? They offer profitsharing but if you leave prior to seven years you get nothing. I do plan on leaving within the seven years, already in my second year.

Other Facts:
- No longer contributing to 401k, but contributing the max Roth IRA limit every year, invested in individual stocks returning 10-18%. Maxing Roth for last six years.
- Saving 30% every pay period w/direct dep. to online savings acct to build up liquid emergency funds & siphoning excess to Brokerage acct for investing.
- Contributing approx. 6K/year to Brokerage account invested in no -load index funds returning 8 - 15%. Aggressive growth portfolio.
- Purchased insurance policy to build up cash value and create something for beneficiaries
- Age: 32, good health/non-smoker, renter (housing in area runs over 800k), no dependants, no liabilities

What do you advise in my situation? Thank you for your help.

Thanks for all the input. To clarify further, I have a EIUL (Equity Indexed Universal Life) policy to create an estate for surviving family members/heirs. It tracks the S&P cap @ 12.5% min 1%; can borrow the cash value built up for my retirement if needed. Re: pre-tax exclusion 401k offers, logic behind not to do so is b/c I'm in a low tax bracket below 60K & salary isn't expected to exceed single contrib limit. Also contrib to 401k are harder to withdraw compared to a Roth; IMO it's asinine to pay loan on monies that are mine to begin with. I rather be taxed now w/Roth than later b/c I'm in a low bracket now, 40 years from now I will be in a higher one but I probably won't have the same investments in a Roth, brokerage or 401k. Even if I did fully contribute to the 401k it doesn't perform as well as my brokerage & Roth. Perhaps I misunderstand the importance of lowering my present tax bracket re: investing and how a 401k can balance my overall assets. Any further ideas greatly apprec.

Wanted to get a even million EIUL policy but underwriting couldn't justify it. Result, 500k EIUL & the basic 110k w/work. Honestly as we all know 600k doesn't really leave much for surviving family. Although in good health I never take it for granted that I'll live until the mortality stats i.e. 86-94. Hence the need for the life insurance/protection. Re: the co profit sharing digdown... you raise interest'g points, however the primary reason why I'm not concerned is b/c the percentage is really low if under 4 yrs w/the company. digdown... can you cite any sources for your vesting info u suggest? Thanks.

Lastly, re: the emerg funds I like to view it as what is the largest check I can write OR what is the largest withdrawal I can make today. In case of an emergency the last thing I want to do is shuffle assets and/or liquidate inorder to obtain a sizable amount of funds in a short amount of time 48 hours or less.

Answer 1

You are doing the right things. Maxxing your Roth IRA is perfect and I am also in favor of the EIUL because it provides you a vehicle in which your investment portion accumulates tax free and an EIUL also allows you to withdraw monies tax free.

The problem that most folks don't appreciate with an IRA or 401K is that the trade off for having your initial investments made with pre-tax dollars cause you to have to pay considerably more in taxes on the eventual withdrawls.

The best way to visualize this is the case of the farmer. Is it better for the farmer to pay taxes on the purchase of his seed or on the value of his harvest? Everyone has a choice pay tax on the "seed" Roth IRA, EIUL, VUL or pay tax on your "harvest" 401K, IRA, 403B. The larger your "harvest" grows the more taxes you pay. Why do you think the government is pushing 401K and IRA? A good clue is in the fact that you MUST beginning withdrawing from your 401K and IRA when you reach 70.5 whether you need to or not. They want their taxes!

Answer 2

Even without the company match, if you have extra money to save after doing all that you already are, stick it in the 401K. I'd just stick it 80/20 or so between index stock and bond funds.

You're still getting the tax benefits, which equate to a couple points of return on any non-tax-preferred accounts.

Or just pump up your variable life policy, assuming that's what you have. You can always put extra into it, it does have some tax advantages.

And by the way, you're making the rest of us look really bad. Thanks for that. :P

Answer 3

I'd continue to put money into your 401k if you're still looking for investments. Simply because they don't offer a match is no reason to exclude them. It's still pre-tax income exclusion.

You don't say what your income is and that's critical. A Roth is only good if your current tax rate is going to be lower than your future tax rate. Your guess as to whether that's going to happen or not is as good as mine. Certainly we have to pay for certain things (war) eventually...but historically the tax rates have decreased in the upper brackets not increased.
And, given that you are already investing a large amount of money after tax...it makes sense to hedge your bets and invest some pre-tax as well. That way YOU will get to determine which accounts to pull from and YOU will get to determine your tax rate in any given year. And, if you're already in the highest tax bracket now??? putting it into a ROTH could be DAMAGING your returns. Certainly it's tax free coming out but you're losing out on big tax breaks now AND the compounding effect on that extra income.

Invest in both and consider your employers Profit Sharing contribution a bonus. BTW, rules say that contributions made after 12/31/2006 have to vest in 6 years - 20% each year after year 2. Contributions made prior to that can remain on the 7 year vesting schedule. But...still 20% each year. Just starting after year 3. Unless you leave this year, you will be entitled to SOME of that money. Depending on your plan's year end and your date of hire you could have more vesting then you think. You get a year of vesting if you work 1000 hours in a year. So if you were hired on August 1 and worked full time you could have gotten a year in that first 6 months of employment. Keep in mind too when you leave...once you earn 1000 hours you get another year. So track that carefully when you go. Never leave the last week of December and never leave when you have 950 hours of service for the year...you're leaving money on the table.

Answer 4

You would be better off contributing to the 401(k). Contributions to a 401(k) is pre-tax, so that reduces your tax liability currently. Roth IRA contributions are after tax, so maxing out the contribution has no effect on your taxes.

Unless you really need the access to liquid assets (assets readily convertible to cash), I would suggest putting as much into your 401(k) as possible.

Answer 5

It sounds really good (watch you don't build up too much cash - 3-6 months of expenses is fine), except for the insurance. Insurance is not an investment and if someone told you it was, they were a salesman who will make more off of you than you will make with your policy. You should see about getting out of that. At 32 with no dependents you don't need insurance and once you do need it you only need term. Anything else is a waste of premiums. Insurance salesmen/Financial planners can be sneaky bastards who care more about their financial healthy than yours - and I'm one of them.

Sorry that someone talked you into a bad investment. Hopefully you can cut it loose before you lose too much to fees.

Good luck!
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Answer 6

I agree with the guy above. Sounds like you are doing exceptionally well for someone your age - except for the life insurance policy. Stick to term policies.

Answer 7

Keep doing exactly what your doing. Let time multiply your assets.

Answer 8

1. get a new job that matches. no match is just ridiculous
2. Vanguard.com
3. move and buy a home