Author Topic: 401k vs IRA after company match  (Read 1298 times)

mbjerry

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401k vs IRA after company match
« on: April 07, 2018, 12:04:56 PM »
My company match in my 401k is 8%. For investing above and beyond the 8% should I max out IRA's (one for my wife and one for me for a total of 11K) before returning to my 401k to invest above and beyond the 8%? Thanks.


maizeman

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Re: 401k vs IRA after company match
« Reply #2 on: April 07, 2018, 12:09:16 PM »
The argument for maxing out your IRA before returning to top off your 401k is that often your 401k is provided by a company picked by your employer for some reason other than providing low fees for their employees, while you can pick your own IRA provider and find one with extremely low fees.

If that accurately describes your situation I would indeed suggest maxing out your IRA before coming back to max out the 401k.

mbjerry

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Re: 401k vs IRA after company match
« Reply #3 on: April 08, 2018, 08:39:18 AM »
The argument for maxing out your IRA before returning to top off your 401k is that often your 401k is provided by a company picked by your employer for some reason other than providing low fees for their employees, while you can pick your own IRA provider and find one with extremely low fees.

If that accurately describes your situation I would indeed suggest maxing out your IRA before coming back to max out the 401k.

My company use Vanguard and I have a good selection of low cost funds. Are there any other advantages to an IRA over a 401k?

maizeman

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Re: 401k vs IRA after company match
« Reply #4 on: April 08, 2018, 08:46:58 AM »
Not that I'm aware of. If you're happy with your fund options and costs are low* it should be essentially a wash between putting money into an 401k and an IRA.

But maybe someone else will chime in with another advantage/disadvantage I am unaware of.

*And this doesn't just mean the expense ratios of the funds, as some 401k management companies will also charge a percent of assets under management separate from the expense ratios of the component funds.

blinx7

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Re: 401k vs IRA after company match
« Reply #5 on: April 08, 2018, 08:55:15 AM »

IRA typically has lower fees but that depends on your particular company's plan.  Roth IRA contributions (which can be made backdoor) can be withdrawn with no penalty so a Roth IRA provides extra liquidity.

It's an individual decision but generally speaking IRA will be preferable. 


PDXTabs

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Re: 401k vs IRA after company match
« Reply #6 on: April 08, 2018, 10:11:34 AM »
But maybe someone else will chime in with another advantage/disadvantage I am unaware of.

If the fees are the same I would actually prefer the 401k since it is fully ERISA compliant. As such, it is completely protected from bankruptcy. It can also be borrowed against (if the plan allows). The same can not be said for an IRA.

With that said, your employer is allowed to move your awesome 401k to somewhere dumb if they change their mind.

mbjerry

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Re: 401k vs IRA after company match
« Reply #7 on: April 09, 2018, 07:38:26 AM »
Not that I'm aware of. If you're happy with your fund options and costs are low* it should be essentially a wash between putting money into an 401k and an IRA.

But maybe someone else will chime in with another advantage/disadvantage I am unaware of.

*And this doesn't just mean the expense ratios of the funds, as some 401k management companies will also charge a percent of assets under management separate from the expense ratios of the component funds.

I never considered that they may be charging fees outside of the expense ratio. I will have to look into that. Thanks.

maizeman

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Re: 401k vs IRA after company match
« Reply #8 on: April 09, 2018, 08:07:48 AM »
Yup. I only know this from experience. We were trying to set up a retirement plan for one of the startups I'm involved with, which at the time had only a handful of employees. The company we were working with had great advice about how to best negotiate rules about Highly Compensated Employees and top heavy plans, and also offered a plan with lots of low cost vanguard mutual fund options. However, once they delivered the plan documents, I dug into the paperwork it turned out they were going to be charging 0.6% of assets under management each year initially (although this would have declined to 0.3% as the assets in the 401k plan grew).

Larger employers should be able to negotiate better deals, it just depends on whether or not they're incentivized to do so.

Now that said, if your plan is being directly administered by vanguard (not just providing access to vanguard funds), I think it's unlikely you'll find any egregious plan level fees in there but it is probably good practice to check anyway.

PDXTabs

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Re: 401k vs IRA after company match
« Reply #9 on: April 09, 2018, 09:23:35 AM »
I almost forgot: a 401k will let you withdraw money starting at 55 without penalty under some circumstances without resorting to a 72t.

phred

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Re: 401k vs IRA after company match
« Reply #10 on: April 09, 2018, 11:59:56 AM »
Don't put so much into your retirement accounts that you're not able to grow a discretionary fund for big purchases down the road while still of working age.

An IRA may give you more flexibility if you want to put in a few individual stocks, gold, Treasuries, etc

As to regular IRA or Roth -- it depends on your tax bracket.  If in a high bracket choose the regular IRA to get the tax deduction, if in a low bracket then generally choose the Roth.  You can always -- so far -- do back door conversions down the road.