Author Topic: Should I only contribute enough to get the match in my 401(k)?  (Read 2700 times)

TXScout2

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My company matches 4% of my income (112.5k) to my 401(k).  Of the fund options the best deal has annual operating expenses of 1.91%, the worst is 2.4%.  Seems awful. 

Right now I am maxing out the 401(k)(Roth), and maxing out my IRA.  I also have 100k in student loan debt, which I pay $1500/month on now.  I am thinking about reducing my contributions so that I just max out the employer match, and just putting the extra savings into the loan. 

My student loan is at 3.9%.  I figure the money in the 401(k) has to get around 6% interest just to make it a better investment than the student loan.  Of course that doesn't account for tax free compounding. 

I could also switch my contributions to pre-tax, and at least get some more savings now.  Maybe put those savings into the loan payments. 

I suppose there's no sure answer to this since nobody knows exactly what the market will do.  But any advice is appreciated.

Thanks!

forummm

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #1 on: June 22, 2015, 03:57:39 PM »
Ugh. That's terrible. Can you get your employer to switch to a less absurdly expensive provider?

At your income, the traditional 401k (pre-tax) may be better than the Roth.

How long do you expect to stay at this particular job?

sirdoug007

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #2 on: June 22, 2015, 05:13:40 PM »
Two recommendations:

1. Figure out who makes the 401(k) decisions at your company and start lobbying for them to move to Vanguard.

2. Read this and reconsider your Roth 401(k).  For your income, you will almost assuredly benefit more from a traditional 401(k): http://www.gocurrycracker.com/roth-sucks/

MDM

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #3 on: June 22, 2015, 06:57:11 PM »
Ugh. That's terrible. Can you get your employer to switch to a less absurdly expensive provider?

At your income, the traditional 401k (pre-tax) may be better than the Roth.

How long do you expect to stay at this particular job?
+1

In particular the last question: the answer can make the difference between using the 401k above the match or not.  E.g., see the '401k vs Taxable' tab in the case study spreadsheet.

Of course, if you think your retirement marginal bracket will be higher than now, Roth will be better than traditional.  Gaze into your crystal ball and....

TXScout2

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #4 on: June 23, 2015, 09:19:14 AM »
So the lobbying for a better 401(k) is pretty much a dead-end.  I work at a small law firm and the plan provider is some friend of the managing partner's family.  May be at this job for another year or two.  I undoubtedly will move the funds to Vanguard when my employment ends.

I have decided to switch all of my contributions to pre-tax dollars instead of post-tax.  So I guess the consensus is even with the high fees, a pre-tax 401(k) will beat a brokerage account or paying down my student loans?  So I should max out pre-tax 401(k) before making extra contributions to loan payments/Vanguard brokerage?

Thanks

forummm

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #5 on: June 23, 2015, 09:23:51 AM »
If you're only going to be there a year or two, max it out ($18k/yr). Then roll it over to a Vanguard IRA as soon as you leave. You can't go back in time and make tax-advantaged contributions. Make them while you have the chance. The loans are a low interest rate and tax-deductible. You can pay them off later.

Civex

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #6 on: June 23, 2015, 08:42:25 PM »
If you're only going to be there a year or two, max it out ($18k/yr). Then roll it over to a Vanguard IRA as soon as you leave. You can't go back in time and make tax-advantaged contributions. Make them while you have the chance. The loans are a low interest rate and tax-deductible. You can pay them off later.

At the OP's income level, the interest isn't deductible- I still agree with your plan; especially considering the interest rate though.
--->I'm in a similar position, deciding between 5% student loans and mega Roth contributions. I am attempting to maximize my tax advantaged space for one year, before hammering the SL. I would prioritize traditional 401k to to the max>Roth IRA>Emergency Fund>Student loans. Tax savings once you are >$100k are significant.
« Last Edit: June 23, 2015, 08:45:16 PM by Civex »

clifp

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #7 on: June 23, 2015, 10:21:20 PM »
If you're only going to be there a year or two, max it out ($18k/yr). Then roll it over to a Vanguard IRA as soon as you leave. You can't go back in time and make tax-advantaged contributions. Make them while you have the chance. The loans are a low interest rate and tax-deductible. You can pay them off later.

I agree. The excess fees are going to cost you are around $1,000 for two years, the tax saving are around $10,000 (including state).  Now admittedly checking on the fees of potential new employers 401K would be pretty low  priority before taking a job, but it wouldn't hurt to ask.

Faraday

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Re: Should I only contribute enough to get the match in my 401(k)?
« Reply #8 on: June 24, 2015, 11:20:18 AM »
If you look at: http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6211
It agrees pretty closely with the advice you are getting, especially this:

The general rule of thumb for investing priority is:
1.   401k/403b up to the company match
2.   Max out Roth
3.   Max out 401k/403b
4.   Taxable Investing

Which I had to reference recently, so it quickly came to mind when I was reading this thread.
I started another thread similar to this in which I'm closing out a taxable investing account (#4) and moving that money to a Roth (#2)...(thanks forummm!)
« Last Edit: June 24, 2015, 11:21:49 AM by mefla »