Is there any advantage in investing in 401K plan if employer does not match anything?

Question

Is there any advantage in investing in 401K plan if my employer does not match anything and if I might take the money out in 10 years (before maturity date)

Answer 1

It depends on how much you plan on investing and what your income level is. If you only plan on investing $3,000 to $4,000 a year, and your income doesn't restrict you from investing in a Roth IRA, you may be better taking the income now, paying taxes and investing it through a Roth (assuming you have the discipline to do so).

If you don't qualify for a Roth, but are still planning on investing $3,000 to $4,000, you may be better off taking it and investing it in an IRA where you will have much more freedom (and potentially lower fees) to invest in thousands of funds, stocks, bonds, etc.

Finally, if you are planning to put away $5,000 plus, then the 401(k) might be the way to go. Your tax benefit on investing, say, $7,000 would probably outweight the return you might get by taking the money, paying taxes today, investing through an IRA and in a brokerage account, and then paying taxes again later.

Answer 2

Not as much as if they were matching. If this is the case, first max out your Roth IRA. After that the advantages to putting money in a 401k with out a match is that: 1) it makes you save more and its something you won't notice gone in your checks that you get because it will be taken out before hand rather then you having to put the money aside which would increase the possibility that you spend your "investment" money on something you don't need, 2.) your interest still grows tax deferred until you take it out (assuming when you retire) which at that time you will pay taxes on it, 3.) depending on what your 401k provides some provide investing options that other individuals can not get into (closed funds). If you like your options theres nothing wrong with putting money into a non-matching 401k, just make sure you max your Roth first and also make sure you are not looking to delve into other investment opportunities which might tie up this money (ie Real Estate) because besides a few exceptions you will have your penalty for taking out early distributions.

Answer 3

In the long run, stocks return in the range of 8 - 12% per year. During the past 12 years, that return has been in the range of 0-4%. Because of all the volatility over the past ten years and the specific events that have caused them, the market has become much more volatile. That is why you are seeing some of the investments in your 401k choices rise 25 to 30%. However, getting a rate of return of 9.4% during these times is something to be happy about. In the future, you should keep doing what you are doing, make sure your portfolio is diversified and don't take on too much risk by chasing higher returns. A fact to note, that if you compounded your $15.5k at 9.4% for the next 40 years (till retirement), it'd be worth $564,000! Slow and steady wins the race!

Answer 4

depends on what your age is and what your tax rates are now and in 10 years.

If you're going to be over age 55 and quit your job in 10 years then you'll be past the age where the 10% penalty applies. Then it comes down to tax rates.

If you're going to be in a higher tax bracket in 10 years then no...pay the tax as you go. If you're going to be in the same or lower tax bracket then yes it's an advantage. First due to dollar cost averaging of the investments over typical Lump Sum IRA contributions and Second due to basically an avoidance of small amount of tax due to the differing of tax rates.

Answer 5

It could be viewed as an "enforced" savings account. It is important to have to have a nest egg for the future and even if your employer doesn't match it, it can still benefit you by automatically taking money out of your paycheck and putting it into "savings". It's pre-tax, too, which will reduce your annual tax burden.

Do they have an employee stock purchase program? That woudl serve the same purpose but be more liquidable and have more earning potential.

Answer 6

need to weight the advantages of tax deferral versus the penalties of withdrawing early. it depends on the timing, your tax bracket, etc