Wifes 401k is *really* bad. Does it still make sense in our case?

[Cordivae]

Last year my wife started work for a non-profit that didn't allow her to contribute to their 401k until she hit her 1 year anniversary.  This recently passed and while looking at her Mutual of America plan I was *SHOCKED* to see that the lowest cost S&P 500 index fund had a 1.4% expense ratio.

This is terrible, but I'm wondering if it still makes sense in our case.  Currently we are bumping up against the income limit where roth contributions start to phase out.  A large part of my income is a variable bonus that I get in December and it could easily put us over the limit.  If she were to max her 401k, I would be ~90% confident that we would be under the limit this year.

My initial plan was actually to roll our traditional IRAs into our 401ks and then set up a back door roth going forward so that I didn't have to concern myself with this limit, however with the expense ratio on her 401k I'm not sure this makes sense.

Considering these options:
- No 401k for her, Wait until December to see where we fall on income limits and contribute if under.
- Max her 401k contribution this year and plan to roll over into her IRA as soon as possible (honestly she may not even be at this job in a year as we are thinking of having a child)
- Skip her 401k, roll over my traditional ira into my 401k and only do a backdoor roth for myself. 

Thoughts?

[erutio]

Does her company give a match?

[dandarc]

Check the plan documents - I've noticed some shitty 401Ks allow in-service distributions, so you might find you can get the money into an IRA even faster than the 1-2 years that you seem to be planning on.

Regardless, that's $19.5K of tax-deferred space, and given the high income and short time horizon, probably worth it in spite of the high expense ratio funds due to the tax savings. Even more so if there is any kind of match.

Not sure if opting in to the 401K for the backdoor Roth is worth it for her or not - the larger the balance, the less likely it makes sense. For you, if you're happy with your 401K, you might do that to get set up in case the backdoor Roth is needed for you.

[terran]

Here's one way of thinking about it: https://www.bogleheads.org/wiki/401(k)#Expensive_or_mediocre_choices

[Frankies Girl]

Did you review the investment order thread?

https://forum.mrmoneymustache.com/investor-alley/investment-order/

It sometimes won't make sense to max a 401k if the options are terrible, but the other advantage that is often overlooked is that you can reduce your taxable income by $19,500, and that may be worth the odorous 401k choices.

And as terrible as the choices are, if she's stuck with the crummy 401k, holding your nose and going in for the max may make sense both for the immediate taxable account reduction, getting that money invested now (even using high ER funds) and then doing a rollover to Vanguard or Fido or a rollover IRA ASAP if she quits this company shouldn't cause too much loss (mostly just account closing fees that might be refunded by Vanguard or Fido if that's where you move the account upon exit).

I absolutely would put together a quick/easy to read email/primer for the person in charge of the 401k to review, and/or ask them to also watch the PBS/Frontline special: The Retirement Gamble to really explain how terrible their 401k is.

https://www.pbs.org/wgbh/frontline/film/retirement-gamble/

[Cordivae]

No match, I would of course go for that.

Thanks everyone for the advice and pointing me in the right direction.  Really appreciate it.

[Ready2Save27]

I asked a very similar question not too long ago (my 401k is even worse, no index funds and 2% expense ratios, no match), but the general consensus that I agreed with was it is still worth it. Especially at higher incomes, this has a larger impact since it’s taking away money that would be taxed at your highest marginal rate. If you go through the calculations, or even just plug in pretend numbers of contributing/not contributing into tax software, you’ll see the savings in taxes far outweigh the expense ratio and possibly a poorer performing fund.

I know it sucks, just hope to roll it over as soon as possible. Can also consider asking your employer to switch plans or offer more funds, though this may not work and may not be feasible depending on the relationship with your employer.

[PDXTabs]

Here's one way of thinking about it: https://www.bogleheads.org/wiki/401(k)#Expensive_or_mediocre_choices

Yes, I max out a fund with 1.8% fees.