Author Topic: Should I invest in an employer sponsored 401k that doesn't have a match?  (Read 947 times)

zack0816

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My new employer has a vesting schedule to their 401k plan. They will match 3% pre-tax dollars if you contribute 6% AND you've been with the company for 5+ years.
  • less than 1 year 0%
  • 1 year 20%
  • 2 years 40%
  • 3 years 60%
  • 4 years 80%
  • 5 years or more 100%
Is it worth investing this year?

For context:
- I can see myself being with the company for 2 to 3 years.
- They use TransAmerica. Not sure about the fees, but it's not Vangaurd so it makes me nervous.
- I'm currently saving most of my income (and living off my wife's) for a safety net and house/real estate investing [hoping to do a 'house hack' with a duplex... savings is parked at 1.9% through Bettermint's Smart Saver account: https://www.betterment.com/resources/short-term-investing-savings-account-alternative/].
- I'm transitioning from 4 years of self employment where I was maxing out my Roth and SEP IRAs
« Last Edit: October 02, 2018, 06:08:54 PM by zack0816 »

IsThisAGoodUsername

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #1 on: October 02, 2018, 11:36:43 AM »
I'm in a similar position regarding vesting of company match. I'm going to max my contribution because regardless of the employer contribution, the employee can always contribute up to $18,500 annually (2018 limits).  That's ours to grow over time!

Research the available funds: https://www.transamerica.com/individual/what-we-offer/products/mutual-funds/

MDM

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #2 on: October 02, 2018, 11:40:51 AM »
You could assume step #1 in Investment Order is not an option, but still use the rest.

swinginbeef

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #3 on: October 02, 2018, 12:11:10 PM »
You would still be turning down the free money if you don't at least contribute the 6%, unless you know that you'll be staying less than one year. They'll keep your contributions and their contributions separate. Your account is always yours. Their match account is from 0 to 100% your depending on how long you stay.

rubybeth

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #4 on: October 02, 2018, 12:13:31 PM »
What are the investment options? I'd probably still do it, choose the lowest fee investment option that's good, and then just roll it over to an IRA if you leave the employer, and you can roll it to Vanguard.

Proud Foot

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #5 on: October 02, 2018, 03:37:48 PM »
They are still matching when you make your contributions and don't forget about the growth of their contributions. I would personally stick with the investment order and contribute to it for the tax savings. If you are only going to be there 2-3 years then even if the plan has high fees you will still come out ahead with the tax savings and the vested portion of the match.

Duke03

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #6 on: October 02, 2018, 03:56:47 PM »
My employer funds two pensions for me and because of this they won't match one penny towards an  401k.  I'm fine with this and still max out my 401k every year on my own because not only is it the smart thing to do it benefits my family and me 100%.

zack0816

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #7 on: October 02, 2018, 05:39:14 PM »
You would still be turning down the free money if you don't at least contribute the 6%, unless you know that you'll be staying less than one year. They'll keep your contributions and their contributions separate. Your account is always yours. Their match account is from 0 to 100% your depending on how long you stay.

I don't think I will. Vesting is dependent on how long I've worked at the company not how long I've invested in their 401k plan. 

zack0816

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #8 on: October 02, 2018, 05:41:56 PM »
What are the investment options? I'd probably still do it, choose the lowest fee investment option that's good, and then just roll it over to an IRA if you leave the employer, and you can roll it to Vanguard.

My investment option is to keep liquid (in a high yield savings account) so I can be ready to invest in real estate sooner.

zack0816

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #9 on: October 02, 2018, 05:43:38 PM »
You would still be turning down the free money if you don't at least contribute the 6%, unless you know that you'll be staying less than one year. They'll keep your contributions and their contributions separate. Your account is always yours. Their match account is from 0 to 100% your depending on how long you stay.

I can always start investing at the year mark.

zack0816

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #10 on: October 02, 2018, 06:03:38 PM »
You could assume step #1 in Investment Order is not an option, but still use the rest.

This is awesome!

WHAT           
0. Establish an emergency fund to your satisfaction
Good here. Have about a years worth of expenses socked away. Plus we are young and healthy.
           
1. Contribute to your 401k up to any company match 
Skip for this year.
         
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
My wife has one $13k debt we are hoping the Teach Grant (don't get me started on that) will take care of. No debt otherwise.
           
3. Max HSA
Just checked. Don't have one. I'd tell my wife to max out hers but they've been really shit with actually paying for things. It requires lots of emails and phone calls she doesn't have time for. She's planning on leaving in a year so we'll be sure to role it over with a better company. Any recommendations?
           
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level.
Just set a bi-monthly $225 deposit in order to max it out.
           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)
Here's where I become uncertain. Stack up cash or invest tax free. I'm reading a book on the great depression right now that is making me want to go the cash route until I reach $100k 

6. Fund a mega backdoor Roth if applicable.
Haha. This sounds fake. I'll have to look into it when I'm on this step.
         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
No mortgage yet.
           
8. Invest in a taxable account and/or fund a 529 with any extra. 
Will start the 529 as soon as we have kids.   
         

MDM

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #11 on: October 02, 2018, 06:22:46 PM »
This is awesome!

WHAT           
0. Establish an emergency fund to your satisfaction
Good here. Have about a years worth of expenses socked away. Plus we are young and healthy.         
...           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)
Here's where I become uncertain. Stack up cash or invest tax free. I'm reading a book on the great depression right now that is making me want to go the cash route until I reach $100k
Step 0 is your hedge against "a moderate catastrophe."  If $100K is what it takes to satisfy you that you have hedged enough, so be it.

If it's a question of asset allocation within your investments, however, you can go as aggressive or cautious as the 401k options allow.

Quote
6. Fund a mega backdoor Roth if applicable.
Haha. This sounds fake. I'll have to look into it when I'm on this step.
Yes, it's a real thing but not all employers offer it.  See After-tax 401(k) - Bogleheads.

Peachtea

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #12 on: October 02, 2018, 07:29:35 PM »
I donít think you understand how the vesting works. You seem to think year 0-1 they put in $0 regardless of what you contribute; year 1-2 they put in 20% of 3% salary if you do contribute 6%; year 2-3 they put in 40% of 3% salary if you do contribute 6%, etc. But that would be very unusual if true.

How vesting works is they put in 3% every year you contribute 6%. If you leave before 1 year they take back all their contributions (0% vested); if you leave between year 1 and 2, you keep 20% of their contribution and they take back 80%; if you leave between year 2 and 3, you keep 40% of their contribution and they take back 60%; and etc. At all times you keep 100% of what you contribute.

So if you contribute 6% now, you will get your employer 3% matching now. If you leave after 3 exact years (I.e. not 2 years, 11 months, 29 days), you will get to keep 60% of what your employer contributed for those 3 years. If you wait a year to contribute and leave after 3 exact years, then you will keep 60% of what your employer contributed for the 2 years you also contributed.

Pizzabrewer

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #13 on: October 02, 2018, 07:37:52 PM »
What Peachtea said.  Your company will in fact be contributing 3% on your behalf from day 1 (assuming you withhold at least 6%).  How much of that 3% you get to keep depends on how long you stay.

dcozad999

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #14 on: October 03, 2018, 06:45:14 AM »
Peachtree is correct. They start the match immediately, but if you leave the company before you've been there one year they will pull it back out. You should start contributing the 6% immediately.


And I'd like to say that these types of companies that require a five year vesting period for a 401k with a low match are pathetic. At a 3% match they are contributing very little to your retirement, especially compared to the pensions of decades past. My company also gives a shitty 3.5% match but at least we are vested immediately. Now if they were giving something like a 10% match I can see their point, but not many employers are that generous these days.


rubybeth

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #15 on: October 03, 2018, 06:50:16 AM »
You would still be turning down the free money if you don't at least contribute the 6%, unless you know that you'll be staying less than one year. They'll keep your contributions and their contributions separate. Your account is always yours. Their match account is from 0 to 100% your depending on how long you stay.

I can always start investing at the year mark.

No, that's not how this usually works. Review the rules around the vesting. My DH got nothing the first year, but then on day 365, they put a huge chunk into his 401k since he stayed for the full year. Same the next year (chunk got bigger). You usually have to contribute during the first year to get something. You can't wait until the second year.

Also, you didn't answer my question:

What are the investment options? I'd probably still do it, choose the lowest fee investment option that's good, and then just roll it over to an IRA if you leave the employer, and you can roll it to Vanguard.

My investment option is to keep liquid (in a high yield savings account) so I can be ready to invest in real estate sooner.

What are the investment options in the 401k plan? If there's a good basic S&P index fund, just put the minimum 6% in that, and do whatever else you want with the rest of your investments.

Car Jack

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #16 on: October 03, 2018, 06:58:45 AM »
Your plan is similar to mine, although mine is with Fidelity, so better, but my percentage is worse.  I get "up to" 50% matching on the first 4% as voted quarterly by the board and vested 20% per year.  So let's say the board decides this quarter to match only half of the 50%.  So now it's 25% of the 4% that I put in or 1%.  But wait....that's vested over 5 years so after 1 year, I'm going to get 0.2%. 

Your set up is far better than mine for matching.  Why would you not use it, at least to the 6% point?

swinginbeef

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #17 on: October 03, 2018, 07:54:18 AM »
like Peachtea said, you're definitely misunderstanding how vesting works.

Cool Friend

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #18 on: October 03, 2018, 08:03:50 AM »
Sidebar question for vesting wizards: do vesting schedules tend to start from the day you began at the company, or the day you opted into the 401k plan?

Proud Foot

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #19 on: October 03, 2018, 09:09:27 AM »
Sidebar question for vesting wizards: do vesting schedules tend to start from the day you began at the company, or the day you opted into the 401k plan?

That would all depend upon how the plan is set up. All the ones I have seen started the vesting schedule with the first day you are eligible to contribute to the plan. However, that eligiblity date differed by plan, some were the first day of employment, some after 90 days, and the worst I saw was 1 year of employment.

Cool Friend

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #20 on: October 03, 2018, 09:25:00 AM »
Sidebar question for vesting wizards: do vesting schedules tend to start from the day you began at the company, or the day you opted into the 401k plan?

That would all depend upon how the plan is set up. All the ones I have seen started the vesting schedule with the first day you are eligible to contribute to the plan. However, that eligiblity date differed by plan, some were the first day of employment, some after 90 days, and the worst I saw was 1 year of employment.

Word.  Mine was the 1 year after employment and I have the same weak contribution % and vesting schedule as OP.

zack0816

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #21 on: October 11, 2018, 07:39:33 AM »
Your plan is similar to mine, although mine is with Fidelity, so better, but my percentage is worse.  I get "up to" 50% matching on the first 4% as voted quarterly by the board and vested 20% per year.  So let's say the board decides this quarter to match only half of the 50%.  So now it's 25% of the 4% that I put in or 1%.  But wait....that's vested over 5 years so after 1 year, I'm going to get 0.2%. 

Your set up is far better than mine for matching.  Why would you not use it, at least to the 6% point?

I'm glad I came back to check for updates. Just emailed HR to get the ball rolling on contributing 6%. Thanks to everyone who set me straight!

simonsez

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #22 on: October 11, 2018, 08:48:59 AM »
Awesome, always great to hear about clear cut wins/improvements in the financial arena!

Pizzabrewer

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #23 on: October 11, 2018, 08:51:52 AM »
Sidebar question for vesting wizards: do vesting schedules tend to start from the day you began at the company, or the day you opted into the 401k plan?

Good question, I would imagine it depends on how the plan is set up.

At my current employer, I couldn't participate in the plan until my 1-year anniversary.  The meager match they provide (25% of first 6%, or 1.5%) vests based on my working start date.  33% after one year employed, 66% after two, 100% after 3 years.

mm1970

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #24 on: October 11, 2018, 10:28:56 AM »
Peachtree is correct. They start the match immediately, but if you leave the company before you've been there one year they will pull it back out. You should start contributing the 6% immediately.


And I'd like to say that these types of companies that require a five year vesting period for a 401k with a low match are pathetic. At a 3% match they are contributing very little to your retirement, especially compared to the pensions of decades past. My company also gives a shitty 3.5% match but at least we are vested immediately. Now if they were giving something like a 10% match I can see their point, but not many employers are that generous these days.
My company has zero matching, so it's better than that!

catccc

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Re: Should I invest in an employer sponsored 401k that doesn't have a match?
« Reply #25 on: October 11, 2018, 01:05:08 PM »
Ditto Peachtea, at least that has been my experience at companies that had a similar vesting schedule.  But it really depends on how the plan is set up, so it could be different. 

Even if they didn't have any matching, if you have the cash flow to contribute (after following all the investment order guidelines) it is still better to save than to not save, IMO.  Years ago I worked at a company that did not match, and I am now sorry I didn't contribute anything.