Author Topic: 401k with zero comany match  (Read 8467 times)

veloman

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401k with zero comany match
« on: January 27, 2015, 09:24:43 PM »
My company offers a 401k, but no match. We are a very small startup, not sure if they will ever do a match. I am very knowledgeable about the stock market and trading. But I can't decide on what % to put in the 401k, where I will have almost no control over managing it.

Honestly, I feel like I rather just put 0% in. 60% of my income goes straight into my online brokerage account as it is. Yes, the tax benefit is something to consider. But I'm 30 and not being able to remove the money for 35yrs without penalty is not something I'm crazy about.

I'm leaning towards 5%. Ideas?

MDM

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Re: 401k with zero comany match
« Reply #1 on: January 27, 2015, 10:37:40 PM »
Why do you think you have 35 years during which you won't be able to remove the money without penalty?

dividendman

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Re: 401k with zero comany match
« Reply #2 on: January 27, 2015, 10:47:32 PM »
If the fees are reasonable (they have vangaurdesque index funds), and you make a reasonably high income, you should definitely max it out. Also, there are lots of methods for getting access to the money early.

humblefi

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Re: 401k with zero comany match
« Reply #3 on: January 28, 2015, 07:19:32 AM »

I would use the entire $18K.....401K has many implicit advantages that you are probably aware of:
+ Savings plan :-) Never seeing the money in your bank account => no chance of spending it.
+ Reduces your tax bracket...why pay more tax when you can avoid it? You have not indicated your tax bracket....
+ If you find a total stock market index fund or a target fund, you get a reasonably good gain...close to what the market gains are.
   You have not indicated  what your 401K fund options are...small companies usually do not have a great set...
+ COMPOUNDING: Take a look at this link please...the effects of compounding are great.
   http://finance.yahoo.com/news/every-25-old-america-see-200000319.html
+ I try a two pronged strategy....some sort of index investing (total stock market fund, target date fund) in my 401K/IRA and use a more active mgmt in my taxable account. I use tax managed Vanguard funds in my taxable account.

Hope it helps...

Dodge

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Re: 401k with zero comany match
« Reply #4 on: January 28, 2015, 07:48:07 AM »
Max out the full 18%. The tax gains are huge, and you can transfer the money to an IRA when you leave the company.

DrF

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Re: 401k with zero comany match
« Reply #5 on: January 28, 2015, 09:37:27 AM »
Please read this.

http://www.madfientist.com/guinea-pig-year-1/

If you take advantage of the tax benefits, it's like giving yourself an extra 30% return EVERY YEAR.

dandarc

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Re: 401k with zero comany match
« Reply #6 on: January 28, 2015, 10:10:48 AM »
Please read this.

http://www.madfientist.com/guinea-pig-year-1/

If you take advantage of the tax benefits, it's like giving yourself an extra 30% return EVERY YEAR.
Over stating it a bit - more like an extra 30% in contributions every year.  Of course that is pretty friggin huge too.

DrF

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Re: 401k with zero comany match
« Reply #7 on: January 28, 2015, 10:19:13 AM »
Please read this.

http://www.madfientist.com/guinea-pig-year-1/

If you take advantage of the tax benefits, it's like giving yourself an extra 30% return EVERY YEAR.
Over stating it a bit - more like an extra 30% in contributions every year.  Of course that is pretty friggin huge too.

It's the same thing. The money was gone to taxes previously, now you are able to contribute (plus the gains from that extra contribution) ~30% more. This is == to an automatic 30% return.


RunHappy

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Re: 401k with zero comany match
« Reply #8 on: January 28, 2015, 10:27:32 AM »
I'm currently in the same situation. My decision to continue to contribute was 1) good fund choices 2)tax benefits 3) a savings "bucket" for after 59 1/2

Scandium

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Re: 401k with zero comany match
« Reply #9 on: January 28, 2015, 10:48:41 AM »
What do you mean by this?
"will have almost no control over managing it. "

What are your fund options, and the expenses? Unless it's truly horrible I would max it out as soon as possible. Paying income taxes, and then tax on dividends every year will cost you quite a bit compared to the tax deferred account.

veloman

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Re: 401k with zero comany match
« Reply #10 on: January 28, 2015, 11:39:44 AM »
My salary is 32k. Married filing jointly with wife who makes more than twice that. Our savings is predominately separate from each others (my money is mine, hers is hers).

There are 6 options in the 401k, labeled from conservative to aggressive. Its vague other than that.

We got married last yr, so until we do our taxes (still waiting on forms from employers) I won't really know how bad or good I am hit.


MrMoogle

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Re: 401k with zero comany match
« Reply #11 on: January 28, 2015, 01:40:21 PM »
So 60% of 32k is 19.2k.  If she makes twice that, she makes 64k, for a total of 96k.  That puts you in the 25% tax bracket. 

I'm hoping she is like you and saving too?
If you both put in 18k, for a total of 36k then you drop into the 15% bracket.  You won't save 25% on all that money, some will save 15% on taxes.  Then it will grow tax free.  Then you can both put $5500, for a total of $11k into traditional IRAs.  Again, 15% savings on taxes and it grows tax free.

If you do this (as a couple), 96k income - 36k 401k - 11k IRA - 20.6k standard deductions = 28.4k.  You'll pay a combined $3338 in taxes, so something like 3.5%.  She would have to help you in order to max out your 401k and IRA though, since you need $23.5k, and you only save $19k now.  But if you look at things as a couple, the net is better.

Both the 401k and IRA would grow tax free, and when you retire, you can still access them with a Roth pipeline. 

The only reason you shouldn't is if the 401k options aren't good.  Can you provide the details on your 401k?

Hey It's Me

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Re: 401k with zero comany match
« Reply #12 on: January 28, 2015, 01:42:45 PM »
I would max the 401k for the tax savings. If you want to avoid some of the higher management for 401ks, you should look into automatically rolling over the balance to a rollover tIRA.

MrMoogle

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Re: 401k with zero comany match
« Reply #13 on: January 28, 2015, 01:46:30 PM »
I would max the 401k for the tax savings. If you want to avoid some of the higher management for 401ks, you should look into automatically rolling over the balance to a rollover tIRA.

I believe the IRS doesn't allow you to rollover when you're still employed at the company.  I know my company's plan does not allow it.

veloman

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Re: 401k with zero comany match
« Reply #14 on: January 28, 2015, 02:06:43 PM »
My wife is getting better at saving, but spends a lot more still. She has car, cc debt. (says she is working on it, been reading a bit of mmm). We will be itemizing due her mortgage on the house.

I will try to find out more about the 401k investment options.

I have a Roth ira of my own that I am going to start adding to, and manage myself.

My fear of course is not being able to protect my capital during a crash like 08/09

thd7t

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Re: 401k with zero comany match
« Reply #15 on: January 28, 2015, 02:22:28 PM »
My salary is 32k. Married filing jointly with wife who makes more than twice that. Our savings is predominately separate from each others (my money is mine, hers is hers).

There are 6 options in the 401k, labeled from conservative to aggressive. Its vague other than that.

We got married last yr, so until we do our taxes (still waiting on forms from employers) I won't really know how bad or good I am hit.
If it is a small office, ask about the options.  I had a fairly low cost index fund added to the 401k at my office (4 people), because all of the funds cost around 2% when I started.  You have nothing to lose by asking.

johnny847

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Re: 401k with zero comany match
« Reply #16 on: January 28, 2015, 02:33:22 PM »
Look up the Roth conversion pipeline or the 72(t) (otherwise known as SEPP). These are two penalty free ways to access 401k money before 59.5

Combine that fact with the tax savings of a 401k, and you should be maxing out a 401k, regardless of the match.

I believe the IRS doesn't allow you to rollover when you're still employed at the company.  I know my company's plan does not allow it.
The IRS allows companies to allow it, but of course it's still up to the company to allow it. It's called an in service distribution.

RapmasterD

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Re: 401k with zero comany match
« Reply #17 on: January 28, 2015, 02:33:50 PM »
Buy yourself a nice business calculator that sets you back like $5.I'm thinking of the PowerOne Finance Pro Calculator that can run on your iPhone or your Android.

Fire up the SAVINGS template and run some easy numbers, assuming a 7% investment return, through that baby. Look what happens with your money when you set it to 10 years, 20 years, 30 years.

And then tell us you wouldn't want to tie up part of your money for 29.5 years.

Yes, you can do this for free in spreadsheets. But for a $5 investment, you can run calculations like this one in a few seconds.

veloman

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Re: 401k with zero comany match
« Reply #18 on: January 28, 2015, 03:35:29 PM »
Yes, I've seen the big numbers of compound growth. I was a finance major. I have a decent savings 6 years ago, but used it to live off for years while i didn't work full time. Now I'm working ft again and saving quickly.

My company is a 5 employee start up, but the CEO is a bit of a ditz. I guess i could ask about them adding investment options.

I don't mind tying up 4k a year maybe, but i want the bulk of my savings to be something i can control. Maybe i want to put it in my small business or my own trading account i manage. Or live off it when job opportunities go to crap.

Or i guess i could put my blind faith in the general index fund growth to continue.

richschmidt

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Re: 401k with zero comany match
« Reply #19 on: January 28, 2015, 04:36:28 PM »
Yes, I've seen the big numbers of compound growth. I was a finance major. I have a decent savings 6 years ago, but used it to live off for years while i didn't work full time. Now I'm working ft again and saving quickly.

My company is a 5 employee start up, but the CEO is a bit of a ditz. I guess i could ask about them adding investment options.

I don't mind tying up 4k a year maybe, but i want the bulk of my savings to be something i can control. Maybe i want to put it in my small business or my own trading account i manage. Or live off it when job opportunities go to crap.

Or i guess i could put my blind faith in the general index fund growth to continue.

I completely understand the feeling. It's why I don't max out my 403b (non-profit version of 401k). We max our Roth IRAs, and my wife contributes to her 403b, but we like the flexibility of having access to most of our investments should we decide to invest in more real estate, or maybe a restaurant, etc., down the road.

rpr

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Re: 401k with zero comany match
« Reply #20 on: January 28, 2015, 04:49:58 PM »
Yes, I've seen the big numbers of compound growth. I was a finance major. I have a decent savings 6 years ago, but used it to live off for years while i didn't work full time. Now I'm working ft again and saving quickly.

My company is a 5 employee start up, but the CEO is a bit of a ditz. I guess i could ask about them adding investment options.

I don't mind tying up 4k a year maybe, but i want the bulk of my savings to be something i can control. Maybe i want to put it in my small business or my own trading account i manage. Or live off it when job opportunities go to crap.

Or i guess i could put my blind faith in the general index fund growth to continue.

I completely understand the feeling. It's why I don't max out my 403b (non-profit version of 401k). We max our Roth IRAs, and my wife contributes to her 403b, but we like the flexibility of having access to most of our investments should we decide to invest in more real estate, or maybe a restaurant, etc., down the road.
We have 403bs with TIAA-CREF and both of us max it out. Great options with some very special funds as well.

Just realize that in order to get the flexibility you are paying income tax. In our case, we have an extra almost  $12K in savings. It seems like a no brainer. Yes, we may pay taxes in the future, but hopefully by then in ER we would have Roth IRA pipeline setup with low effective tax rates.

veloman

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Re: 401k with zero comany match
« Reply #21 on: January 28, 2015, 06:45:13 PM »
It looks like there are about 30 funds to choose from, or the 6 broad methods. I can divide it up in any way.
Still don't know about fees until I get a login account.

Hey It's Me

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Re: 401k with zero comany match
« Reply #22 on: January 28, 2015, 10:00:40 PM »
I think you should read that MadFIentist post that DrFunk posted; it explains the benefits well. As for accessing the funds prior to 59 and 1/2, you've seen from the above posts that that is not a problem. Good luck to you.

thd7t

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Re: 401k with zero comany match
« Reply #23 on: January 29, 2015, 07:12:32 AM »
It looks like there are about 30 funds to choose from, or the 6 broad methods. I can divide it up in any way.
Still don't know about fees until I get a login account.
Do you have the fund names?  You could look them up.  Also, what company manages your fund?

richschmidt

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Re: 401k with zero comany match
« Reply #24 on: January 29, 2015, 10:20:55 AM »
I think you should read that MadFIentist post that DrFunk posted; it explains the benefits well. As for accessing the funds prior to 59 and 1/2, you've seen from the above posts that that is not a problem. Good luck to you.

It's not a problem if you're using them as retirement funds and are fine with the timeframe of a Roth conversion ladder or SEPP. But if you want to pour all that money into a new business in a relatively short timeframe (1-2 years)? Sorry, not going to happen without a big penalty.

I'm sure it's still the right move for most people most of the time. It might even be the right move for us, and we're making a terrible mistake. (Though the balance on my wife's 403b makes me think we're probably not.) But it very well might not be the right move for some people.

rpr

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Re: 401k with zero comany match
« Reply #25 on: January 29, 2015, 10:36:02 AM »
Your posts are all over the place. It seems you don't know what you are saving for.

If the money is for retirement (FIRE), then the money is best put into tax advantaged accounts.

If you are going to need the money in 1-2 years, then by definition it is not meant for retirement. Therefore you should not be putting any of this money into retirement accounts.


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richschmidt

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Re: 401k with zero comany match
« Reply #26 on: January 29, 2015, 11:00:32 AM »
Your posts are all over the place. It seems you don't know what you are saving for.

If the money is for retirement (FIRE), then the money is best put into tax advantaged accounts.

If you are going to need the money in 1-2 years, then by definition it is not meant for retirement. Therefore you should not be putting any of this money into retirement accounts.


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rpr, I'm not sure if you're referring to me or to veloman, who started this thread. I chimed in because it seems that he and I have similar reasons for not maxing out our 401k/403b accounts... which have to do with wanting flexibility. I don't think either of us have been "all over the place," having just gone back and re-read them.

Ah... I might see where the confusion came in. My "1-2 years" was talking about the timeframe for accessing the money, not time from today. SEPP or Roth conversion ladders move the money slowly. But what if, 5 or 15 or 25 years from now, you wanted to get at a good chunk of it quickly? Say, over the course of a year or two, because you're starting a new business? That money isn't accessible quickly, from what I understand, without paying the penalties. That's what I was referring to. Sorry if I was unclear.

Scandium

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Re: 401k with zero comany match
« Reply #27 on: January 29, 2015, 11:17:53 AM »
Your posts are all over the place. It seems you don't know what you are saving for.

If the money is for retirement (FIRE), then the money is best put into tax advantaged accounts.

If you are going to need the money in 1-2 years, then by definition it is not meant for retirement. Therefore you should not be putting any of this money into retirement accounts.


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rpr, I'm not sure if you're referring to me or to veloman, who started this thread. I chimed in because it seems that he and I have similar reasons for not maxing out our 401k/403b accounts... which have to do with wanting flexibility. I don't think either of us have been "all over the place," having just gone back and re-read them.

Ah... I might see where the confusion came in. My "1-2 years" was talking about the timeframe for accessing the money, not time from today. SEPP or Roth conversion ladders move the money slowly. But what if, 5 or 15 or 25 years from now, you wanted to get at a good chunk of it quickly? Say, over the course of a year or two, because you're starting a new business? That money isn't accessible quickly, from what I understand, without paying the penalties. That's what I was referring to. Sorry if I was unclear.

If you need 401k-level cash to start a business wouldn't you get a business loan instead? Risking your retirement stache on a small business (of which something like 90% fail) doesn't seem smart in any context. Risk the bank's money instead..

veloman

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Re: 401k with zero comany match
« Reply #28 on: January 29, 2015, 12:14:55 PM »
So many conflicting schools of thought.

Here at Mmm, we are not retiring at 60 yrs old. How do I live off my "retirement investments" if I can't withdraw earnings at age 35?.

This place is sounding more like the typical retirement forum.


MDM

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Re: 401k with zero comany match
« Reply #29 on: January 29, 2015, 12:20:54 PM »
Here at Mmm, we are not retiring at 60 yrs old. How do I live off my "retirement investments" if I can't withdraw earnings at age 35?.

http://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/msg415140/#msg415140

MrMoogle

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Re: 401k with zero comany match
« Reply #30 on: January 29, 2015, 12:31:58 PM »
Here at Mmm, we are not retiring at 60 yrs old. How do I live off my "retirement investments" if I can't withdraw earnings at age 35?.

This is one of the most frequently asked questions on "Ask a Mustachian."  There are two ways to get access to 401k money.  The most preferred way for FIRE for people retiring at 35 is called a Roth Ladder or Roth Pipeline.  MDM's link has lots of details.  But you can access your 401k without paying penalties, and paying no or little taxes, depending on how much you need.  It does take some forethought. 


Terrestrial

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Re: 401k with zero comany match
« Reply #31 on: January 29, 2015, 12:34:31 PM »
So many conflicting schools of thought.

Here at Mmm, we are not retiring at 60 yrs old. How do I live off my "retirement investments" if I can't withdraw earnings at age 35?.

This place is sounding more like the typical retirement forum.

People already told you how...look up Roth IRA conversion ladder.  The idea you can't get the money til 60 is completely false.   This isn't to say you need NO traditional brokerage money to pull it off...just probably less than you think.


rpr

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Re: 401k with zero comany match
« Reply #32 on: January 29, 2015, 03:23:13 PM »
Your posts are all over the place. It seems you don't know what you are saving for.

If the money is for retirement (FIRE), then the money is best put into tax advantaged accounts.

If you are going to need the money in 1-2 years, then by definition it is not meant for retirement. Therefore you should not be putting any of this money into retirement accounts.


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rpr, I'm not sure if you're referring to me or to veloman, who started this thread. I chimed in because it seems that he and I have similar reasons for not maxing out our 401k/403b accounts... which have to do with wanting flexibility. I don't think either of us have been "all over the place," having just gone back and re-read them.

Ah... I might see where the confusion came in. My "1-2 years" was talking about the timeframe for accessing the money, not time from today. SEPP or Roth conversion ladders move the money slowly. But what if, 5 or 15 or 25 years from now, you wanted to get at a good chunk of it quickly? Say, over the course of a year or two, because you're starting a new business? That money isn't accessible quickly, from what I understand, without paying the penalties. That's what I was referring to. Sorry if I was unclear.

Sorry, to confuse between you and the OP and for my misunderstanding.

If you need the money for retirement needs, i.e. to live on, assuming that you are no longer working, then it is best to put the money in the usual tax advantaged options available to you such as 401K, IRA etc. As others have added, some planning is needed if you want to access this before age 59.5.

But, if you need the money for other purposes, such as starting a business etc., then by DEFINITION, this money is not for retirement. Then save in your Taxable account for this purpose. You have earmarked this money for other needs and not for retirement.

Always, remember what you need the money for. Make a plan. I agree with others -- if you have earmarked money for retirement, then do not withdraw it to fund businesses. 

There are some people for whom the concept of having the money in retirement accounts with access controls makes them very nervous. If you are among them, then feel free to save in standard taxable accounts. There is nothing wrong with this approach. Just keep in mind that you may need to save a little more 10-20% to compensate for the fact that you have to pay more in taxes in order to have this flexibility.

That said, there may be a certain category of investor who is currently (and expects to be in the future) in the 15% marginal tax bracket for whom it may be beneficial to save in  taxable accounts with 0% rate qualified dividends and capital gains. I have not explored this option much as I am not in this category :)