My company just started a 401k plan, and I'm trying to figure out the best way to invest in it.
Some background on the 401k plan: The plan was set up by Morgan Stanley advisors and only offers managed funds by American Funds. Net fees range from 1.3% - 1.7%, my likely choice would probably just be a target date fund at 1.56%. The plan allows both traditional and Roth contributions. There is no planned employer matching. However, what has been thrown around is a possible profit share with the plan, which would be distributed to individuals based on their relative share of the funds in the account (so if my contributions consisted of 5% of total funds at time of profit share, I'd receive 5% of the total profit share). I'd put it at 50/50 chance of a profit share being disbursed. It also has a 6 year vestment period at 20% per year (not rolling).
Background on me: I'm 23 and took a job @ $46,000/yr 6 months ago after graduating with Bachelors degree. Was given raise to $51,000 at 3-month review. Now managing 2 employees and expect both a raise and a small (.5%-2%) equity share at my next review in February (my owner/CEO was the one who told me to expect it, so that's pretty solid). So I'm well into the 25% tax bracket already as a single filer.
A few questions I have:
(1) Without any guaranteed employer contribution, is the plan still worth it?
(2) Should I make traditional or Roth contributions?
(3) With individual funds having similar or higher fees, is there any reason not to go with a target date fund?
Thanks Mustachians!
