IRA vs. Non-Matching 401k?

Question

My company offers a 401k with NO company match. I also have viewed the funds they offer in the plan and dislike all of them (poor return rates, higher expense ratios, etc.). Is there any disadvantage(s) to just going with an IRA in this case? The only possible disadvantage I have found thus far is I am limited to the amount I can contribute yearly to an IRA, whereas with a 401k I can contribute any dollar amount annually.

Answer 1

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You are limited in how much you can contribute to a 401(k). It's just the limit is $15,000 for 1006, rather than $2,000 for an IRA.

Answer 2

The max annual contribution for an IRA is 4000(5000 if you are 50+). The IRA max is 15500, however your company may make the limit lower than this(generally some percentage of your salary.

Take any money you have now that you want to save for retirement and put it in a ROTH IRA for 2006(you must do this before April 15th).

Then set-up regular contributions to the ROTH IRA. If you have extra add that to your ROTH IRA. Once your scheduled payments plus your contributions reach 4000 for 2007, start making contributions to your 401K even if the funds are not great.

Getting an 8% return that is tax deferred is the same as have a 9.6% return that is taxed at 15%(fed)+6%(state) and the numbers are even higher if you are in the 25% or higher federal brackets.

Start with contributing 4000 to a ROTH IRA. If you want to contribute more you can start having

Answer 3

There are limitations on personal 401k contributions, you can't do more than 15%, there's also a dollar limitation, maybe $15,000?

The 401k is (probably) taken out tax free. This can be helpful if you can use your contribution to put yourself into a lower tax bracket.

Roth IRA contributions are great. You don't get the tax deduction for a ROTH but you're guaranteed you'll never be taxed on that money again, including gains and reinvestments within the ROTH. It's great. With your 401k, you'll have to pay tax on it when you pull it out. Try thinking timevalue of your money and reciprocity. You're getting a tax savings now, but is that worth it because you'll just be taxed later and tax rates will inevitably increase. Wouldn't you rather have tax free money when you retire??

Idea: try to manage your portfolio, invest some into your 401k then some into a ROTH, maybe a regular IRA contribution as well. You'll have less taxable income from doing the 401K, get the IRA deduction on taxes, then ROTH will not be taxable when you're retired.

Answer 4

I believe VaTreas.. meant to say in the second line of his answer - The 401k max is $15500, not IRA max. Don't let fear of paying taxes put into a bad low return fund. Put the max you can into a IRA, anything left over, look for Tax-Advantaged funds from Vanguard, T. Rowe Price or Fidelity. Check out their total after tax return (call them to check) vs the returns from your 401k funds.

Answer 5

If you are eligible for a 401k, you aren't eligible for a traditional IRA, even if you don't participate in the 401k.

PS - 401k has a max as well, but it's much more than an IRA.

Answer 6

go to your boss with your concerns....absolutely no reason that you can't be in a better alternative option. The bosses that put people in high expense ratio plans did so because years ago that was the only option for small plans. That's changed! I get my clients in plans with Vanguard institutional funds, American Funds, T Rowe Price, American Century funds all non-bundled which means you pick and choose amongst them....Total expenses run about 1% including fund expenses, recordkeeping, and TPA expenses. To stay with expenses of 2% is rediculous and not taking fiduciary responsibility seriously.

Answer 7

the following is a few thing to maintain in mind about the Roth IRA account. there is not at all any tax on it in which as there is on your 401k. This will grow to be correct-rated at the same time as considering your asset integrate. earnings generating investments are taxed on the completed tax cost as will be your 401k. hence it is smart to make investments a minimum of a few of your 401k in sales generating resources--bonds, LPs, REITs. The sales from each and every of those is taxed on the completed tax cost to boot. Now pondering the Roth IRA is not at all taxed, it also is smart to position those kinds of resources into the Roth IRA also. And also fairness investments. What you neglected to assert are investments exterior of those 2 vehicles. in case you've were given some, they must be investments which will be taxed on the capital earnings cost--fairness investments. easily, till you're in the optimal tax bracket it is smart to have a area of your fairness investments exterior of a 401k. through doing so your entire tax bill will be dwindled, by and large once you're a lengthy time period investor. in case you've were given the least hankering to make investments a number of you earnings gold and silver those truly must be interior a Roth IRA. both are taxed as collectibles in the different case. yet another aspect to remember in regard to the 401k is that in years yet to go back the tax cost ought to genuinely be higher, probably a lot higher, than it at the moment is. because you actually haven't any decision of putting non-mutual fund investments interior a 401k to boot for probably organization inventory, it maximum in all probability does make adventure to make investments Roth IRA earnings organization stocks nonetheless than mutual funds. yet beware. it may well be very tempting for dissimilar to make investments with their Roth IRA account by and large couple of minutes period trading which in the different case will be taxed on the completed tax cost. which will be a properly attitude to scale again that value of the Roth account. Be only a touch careful. make investments in the likes of MCD, WMT, JNJ, BDX, KO, etc. Or will be ETP with its 8% dividend or PAA with its 7.5% dividend. and do not make investments it in fewer than 5 good corporations.

Answer 8

Still contribute to your 401K, it is a long term savings vehicle. Its also lowers your gross income.

2nd contribrute to a ROTH IRA, your money will grow without paying takes when you retire.

Both savings vehicles will allow for you to retire with a healthy eggs nest!