Author Topic: Worth Investing in HORRIBLE 401k?  (Read 1068 times)

Ready2Save27

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Worth Investing in HORRIBLE 401k?
« on: December 10, 2019, 07:42:54 PM »
My company has a horrible 401k through Voya. Thereís about 20 options (no index funds), with fees around 2%. No company match. IRA is maxed and Iíve been investing in a taxable account through Vanguard (dollar-cost averaging because of my risk tolerance, mostly VTSAX and about 5%-10% international, 100% stocks). No HSA or other tax-advantaged accounts I can use right now. Have sufficient emergency fund, no debts.

Is it worth putting anything into the company 401k, or am I better off investing in a taxable account since the expense ratio is so high and there arenít great options that cover the entire market?

How does a crappy 401k affect my portfolio in the long term (is it a serious enough drag that I should look for another job ASAP, or is it only a mild drag and it wonít affect my net worth much if I work there for a few years)?

seattlecyclone

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Re: Worth Investing in HORRIBLE 401k?
« Reply #1 on: December 10, 2019, 08:01:12 PM »
Remember that you can roll your 401(k) into an IRA after you leave your job. If you expect that to happen within a few years, the tax breaks are likely worth paying those fees for a little while. If you plan to stay at that company a couple decades, taxable investing could win out. Do max out your IRA as a higher priority than 401(k) contributions.

Ready2Save27

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Re: Worth Investing in HORRIBLE 401k?
« Reply #2 on: December 10, 2019, 08:14:02 PM »
Thanks for your input! I plan to work there for 1-5 years, after which I plan to move to a lower cost of living area, so it sounds like it is worth investing in the 401k. My company limits contributions to 20% of salary, so I canít max it out but will contribute 20% (plus max IRA and put remainder into taxable accounts)

MDM

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Re: Worth Investing in HORRIBLE 401k?
« Reply #3 on: December 10, 2019, 08:19:36 PM »
See To 401k or not to 401k? That is the question. for some details on how to quantify the choice.

Bernard

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Re: Worth Investing in HORRIBLE 401k?
« Reply #4 on: December 10, 2019, 09:25:28 PM »
My wife is in the same boat. No employer match, crappy choices, and about 2.5% fees throughout those choices. But we max out our IRAs (2 x $7K), and that's the only way to defer income taxes. If I take those into account, keeping such an crappy 401K seem s to make still sense.


zinnie

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Re: Worth Investing in HORRIBLE 401k?
« Reply #5 on: December 11, 2019, 03:28:05 AM »
It probably still makes sense. But do the math! Also, contact whoever manages your 401k and explain your concerns. Sometimes the people making those decisions have no clue. My husband has been able to get better funds added through repeated requests.

harvestbook

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Re: Worth Investing in HORRIBLE 401k?
« Reply #6 on: December 11, 2019, 05:39:10 AM »
I would consider how much the contributions cut your taxes now. My primary goal is always tax minimization, since those dollars are gone forever no matter what happens later. I'll figure out the withdrawal part on the back end, but I imagine when I'm not working, it will be much easier to minimize taxes.

Steeze

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Re: Worth Investing in HORRIBLE 401k?
« Reply #7 on: December 11, 2019, 12:21:52 PM »
I have the same shitty Voya 401k. I still max it out for the tax benefit, plus I get a 4% match, but even without the match it is still worth it. Save about 4K/yr in taxes.

Compared to my wifeís mega Corp 401k with .01% expense ratios it sucks big time. 2% a year adds up for sure. Iím at year 5 with about 100k in the 401k with a 1.7% ER on a US index fund.

Shitty, but donít stress over it. Eventually you will change jobs and roll it into something better/cheaper. Maybe your companyís owners will wake up at some point too, but donít hold your breath.


PDXTabs

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Re: Worth Investing in HORRIBLE 401k?
« Reply #8 on: December 11, 2019, 12:44:59 PM »
Thereís about 20 options (no index funds), with fees around 2%.

My employer also has a lousy 401k with 1.8% fees and no match. Thanks to the bogleheads wiki I decided that it still makes sense to max it out. Remember, in a year or two you could convince your employer to fix the 401k or leave to a different company with a better 401k.

Buffaloski Boris

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Re: Worth Investing in HORRIBLE 401k?
« Reply #9 on: December 11, 2019, 03:39:36 PM »
OP doesnít indicate what state they live in, or if there are kids. My comments are more or less the same as other posters: if this is a relatively short term job, I would personally embrace the suck and do the 401k and roll into an IRA later. That would be especially true in a state with high state income taxes and no state tax deduction for 529 plans (assuming there are kids). If there is a state tax deduction for 529s, Iím probably doing that first. However, if Iím in a state with NO state income tax, I might well skip the 401k altogether.

Ready2Save27

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Re: Worth Investing in HORRIBLE 401k?
« Reply #10 on: December 11, 2019, 05:53:02 PM »
Thank you all for the input!
Hereís some more detailed information to help decide:
Gross Salary: $61,500
Career: Engineering
Plan: Leave company once I get license or negotiate a higher salary and better 401k plan
State: NJ (stuck here because I can live with someone for a few years)
Status: Single
Age Range: 20-25
Side Business Income: Net Loss for the year of about $1,000
Other Income: Dividends/Interest = ~$100/month
Plan Provider: Voya, has about 20 funds to choose from

From my research, it seems worth maxing my 401k (as opposed to contributing more to a taxable account). It would lower my AGI by $19,500, saving me over $3,000 in federal taxes alone. Plan would cost me $1,000 or less between fees and opportunity costs (funds available are things like large cap, small cap, etc. so it doesnít cover the market as well as Vanguard). Am I missing anything from this analysis?

Buffaloski Boris

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Re: Worth Investing in HORRIBLE 401k?
« Reply #11 on: December 12, 2019, 06:46:28 PM »
Ok, so if Iím in the OPs shoes, Iím a young person whoís single, living in NJ, making in the $60s and pretty much rocking it.

Iím looking at the investment order thread and not seeing a whole lot of reason to deviate from it. Iíd probably embrace the suck and go in somewhat on the traditional 401k. Iím also thinking though that after about 20k total in traditional IRA/401k contributions, maybe Iím looking a Roth or a non retirement account. Why: the marginal Federal tax rates are pretty low once you have gotten it below the 22% bracket and surprisingly, the marginal rates for NJ are pretty low at that point as well. OP is living seriously on the cheap, so he/she can maybe make some serious no-tax bank for the future in a Roth.