Author Topic: Work doesn't offer a 401k match, still use it?  (Read 7428 times)

purplish

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Work doesn't offer a 401k match, still use it?
« on: October 04, 2014, 09:26:48 PM »
Since my work does not offer any matching for 401k, should I still put money in it?  Or should I do a Roth IRA instead?  Or do both? Equal 1/3rds split between 401k, Roth IRA, and Vanguard Index funds investing?

Allen

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Re: Work doesn't offer a 401k match, still use it?
« Reply #1 on: October 04, 2014, 09:35:36 PM »
Do ira first (roth or standard).

If you are contributing more than the ira max (hopefully!) then try to max the work 401k too. What tax bracket ya in?

Vilgan

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Re: Work doesn't offer a 401k match, still use it?
« Reply #2 on: October 05, 2014, 10:18:59 AM »
Since my work does not offer any matching for 401k, should I still put money in it?  Or should I do a Roth IRA instead?  Or do both? Equal 1/3rds split between 401k, Roth IRA, and Vanguard Index funds investing?

This is hard to answer without knowing your income and current financial condition, but I think a good guideline is as follows:

1) If you are in the 15% tax bracket or lower, put 100% into Roth IRA until it is maxed then put any remaining budget into a 401k with the Roth Option
2) If you are in the 25% or higher tax bracket, max out your Roth IRA but then put anything beyond that into your 401k as traditional pretax contributions.
3) Don't put anything in taxable until your Roth IRA and 401k Contributions are maxed out

purplish

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Re: Work doesn't offer a 401k match, still use it?
« Reply #3 on: October 05, 2014, 05:36:33 PM »
Since my work does not offer any matching for 401k, should I still put money in it?  Or should I do a Roth IRA instead?  Or do both? Equal 1/3rds split between 401k, Roth IRA, and Vanguard Index funds investing?

This is hard to answer without knowing your income and current financial condition, but I think a good guideline is as follows:

1) If you are in the 15% tax bracket or lower, put 100% into Roth IRA until it is maxed then put any remaining budget into a 401k with the Roth Option
2) If you are in the 25% or higher tax bracket, max out your Roth IRA but then put anything beyond that into your 401k as traditional pretax contributions.
3) Don't put anything in taxable until your Roth IRA and 401k Contributions are maxed out

When you say "in taxable", do you mean stock market?  What is the difference between the Roth option 401k in #1 and the traditional 401k in option #2?  I would say I am in the 25% tax bracket now.  I make about $40,500 a year at my job, and I own 2 properties which I get rent from, so all together I would say my income is about $65k.  I have almost $7k in IBM stocks.  And then a random $500 in a 403b from a past job.  I'm going to be able to save a lot moving forward, so I'd like to figure out how to disperse it into these types of options in a way that makes sense. 

The only thing is I feel a bit uneasy having lots of money in a 401k when you can't take it out till you're older, however I thought I read some way you can take it out by turning into something else.  I am saving for a down payment to buy a home as well, so I want to be able to access money.

wtjbatman

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Re: Work doesn't offer a 401k match, still use it?
« Reply #4 on: October 05, 2014, 05:53:24 PM »
Also what are the 401k investment options? Even without a match, if you can invest in a bunch of lost cost index funds then the tax benefits of contributing to the 401k could make maxing it out a good option.

purplish

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Re: Work doesn't offer a 401k match, still use it?
« Reply #5 on: October 07, 2014, 06:10:22 PM »
Also what are the 401k investment options? Even without a match, if you can invest in a bunch of lost cost index funds then the tax benefits of contributing to the 401k could make maxing it out a good option.
Not sure, I haven't looked at it yet.


Anyone else?

Sid Hoffman

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Re: Work doesn't offer a 401k match, still use it?
« Reply #6 on: October 07, 2014, 06:51:19 PM »
Do ira first (roth or standard).

If you are contributing more than the ira max (hopefully!) then try to max the work 401k too.

Be extra careful with that - you said "roth or standard" but if you or your spouse benefits from any kind of tax advantaged retirement plan during the tax year, you cannot deduct any portion of contributions to a traditional IRA.  source  Contributing to a Roth IRA is safe, since you cannot deduct the contributions to a Roth IRA in the first place, it is the distributions which are non-taxable after age 59.5.

Personally I am a fan of 401k's even if there's no employer matching because it comes out of your paycheck before the money even hits your bank account.  This is psychologically easier to manage for personal budgeting because you get in the habit of not even thinking of getting that money paid to you at all.  With an IRA, you have to earn the money, then turn around and pay it to someone, which sometimes creates a barrier to actually contributing, especially if you have a spouse with other plans for the money.

I am totally OK with the suggestion to do a third in each type of account for FIRE though.  After all, the 401k and Roth are of greatest value if you're age 59.5, but they do you almost no good for early retirement, as in they don't help you accomplish FIRE any sooner than that age.  So you could do 1/3 in each account type until reaching the $5500 limit for your Roth IRA, at which point you've saved $11,000 in tax advantaged accounts and $5500 in a taxable account.  Then perhaps split it 50/50 until the 401k is at the $17,500 max?  At that point you'd have put away $17,500 in the 401k, $5500 in the Roth IRA and $17,500 in the taxable account ($40,500 total).

If you're saving over $40,500/year, that's awesome!  Tax-advantaged accounts get really tough at that point if you want to avoid crappy government bonds with low yields, so I guess all further savings could go towards some combination of additional mortgage paydown as well as taxable savings.  I just hesitate to get too carried away with mortgage paydowns when so many people have 3-4% mortgages and the markets could be doing 4-7%.  I guess having too much money and not knowing what to do with it all is a good problem to have though.

Thoughts? Input?  I'm personally also working through a new financial situation where I (finally) have enough money to potentially max out a 401k and Roth IRA every year while still having some left over for taxable investing.  I don't want to put too much money in one basket or the other though, like over-saving for age 59.5 preventing me from having enough money to retire at age 47 due to insufficient taxable savings.

Terrestrial

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Re: Work doesn't offer a 401k match, still use it?
« Reply #7 on: October 07, 2014, 08:02:42 PM »
I don't get 401k matching at work either.  I still use it because that's the only way I can do pre-tax savings (over income limit for traditional deductible IRA)...plus the limit for 401k is way higher. 

There are a lot of choices in my plan...thankfully they offer an S&P Index for a pretty reasonable 0.1% annual fee.

purplish

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Re: Work doesn't offer a 401k match, still use it?
« Reply #8 on: October 07, 2014, 08:20:07 PM »
Thanks for the responses! 

Sid- so you would recommend 1/3 stock market, 1/3 Roth IRA, and 1/3 401k (and then split between the remaining 2 after the Roth IRA is filled)?  Just making sure I'm understanding correctly :)  I don't think I could save over 40k a year due to my income not being as high as some people here, but I Think 40k is a goal to aim for.  I don't feel like it'd be good for me to pay off mortgages- mine are under 4%, and due to doing real estate investing I'd actually prefer to use mortgages for leverage.

wtjbatman

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Re: Work doesn't offer a 401k match, still use it?
« Reply #9 on: October 07, 2014, 08:29:48 PM »
Do ira first (roth or standard).

If you are contributing more than the ira max (hopefully!) then try to max the work 401k too.

Be extra careful with that - you said "roth or standard" but if you or your spouse benefits from any kind of tax advantaged retirement plan during the tax year, you cannot deduct any portion of contributions to a traditional IRA.  source  Contributing to a Roth IRA is safe, since you cannot deduct the contributions to a Roth IRA in the first place, it is the distributions which are non-taxable after age 59.5.


Reread your source. How much you can deduct is based on your income, not solely whether you have a work retirement account or not.

Also you can withdraw money from 401ks and IRAs before 59 1/2. Google SEPP and roth rollover.

Purplish, when I brought up the 401k options that was a hint for you to figure them out and tell us. We can't give you good advice without knowing your 401k fund options.
« Last Edit: October 07, 2014, 08:32:14 PM by wtjbatman »

devan 11

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Re: Work doesn't offer a 401k match, still use it?
« Reply #10 on: October 08, 2014, 06:47:23 AM »
  I chose to max out my 401k from the first day that it became available.  Later, Roth 401k became available and I maxed that out.  My wife did this, too. Years later, we are confronted with getting taxed at a higher amount after quitting work than we were paying from work.  I never expected compound interest to work so well, to give us this problem.

  For my wife and me, the math works out to our pulling out $75,000 a year each year between our quitting/retirement and our full retirement age of 70.5 from T IRA's to spend it down before the required minimum distributions hit us. (The money is already moved from 401k to IRA's). The excess above what we need, will get rolled over from a T IRA to a Roth IRA.

To the OP, what worked for us is to go to our endgame and count backwards. I had to go against our tax accountant and my wife to do this.  Conventional wisdom and rules of thumb don't necessarily work work in 'badassity' boundaries. But doing the math will


matchewed

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Re: Work doesn't offer a 401k match, still use it?
« Reply #11 on: October 08, 2014, 08:10:58 AM »
This is a simple question actually. In general it is best to maximize tax advantaged accounts. In particulars you'll just have to run the numbers. But the simple example is that you can put, let's say, 10k into a 401k. If you want to put it into a taxable account you have to pay taxes first. So let's say your taxes are 15%. So you'll be investing 8500 in an after tax account. So run the numbers 10k in one account vs. 8.5k in another assuming identical returns and fees. I'm going to guess that investing 10k now is better than investing 8.5k now.

Asclepius

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Re: Work doesn't offer a 401k match, still use it?
« Reply #12 on: November 09, 2014, 03:54:23 PM »
My employer doesn't offer a match. I use my 401k as a psychologically easy way to invest for retirement, since the money is gone before I see it. I also use it to keep my adjusted gross income within the 0% tax bracket for long term capital gains and qualified dividends. Since I am within the 0% bracket, Roth IRAs then are not tax advantaged for me. They simply tie my money up for 5 years and don't let me touch the capital gains. I don't foresee myself ever making enough money to need a Roth IRA.

Iron Mike Sharpe

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Re: Work doesn't offer a 401k match, still use it?
« Reply #13 on: November 10, 2014, 07:45:28 AM »
It all depends on your income and how much money you have available to invest. 

If you are in the 15% bracket and only have $10,000 to invest, I'd go with $5500 to a Roth IRA and then the rest to 401K.

If you are in the 25%+ tax brackets and have a lot to invest, I'd go with 401K first until you max it out.  After doing that are you still in the 25%+ bracket?  If so, I'd go with a regular IRA.  If you fall into the 15% bracket, I'd go with a Roth IRA.

Ambition89

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Re: Work doesn't offer a 401k match, still use it?
« Reply #14 on: November 10, 2014, 08:03:34 PM »
I don't get 401k matching at work either.  I still use it because that's the only way I can do pre-tax savings (over income limit for traditional deductible IRA)...plus the limit for 401k is way higher. 

There are a lot of choices in my plan...thankfully they offer an S&P Index for a pretty reasonable 0.1% annual fee.


Likewise. I make sure that my Roth IRA will be maxed out and then I go ahead and max out the 401k. Anything that helps keep as much as my money away from the tax man (for now).

Bateaux

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Re: Work doesn't offer a 401k match, still use it?
« Reply #15 on: November 11, 2014, 01:05:45 PM »
Max the IRA.  Then fund the 401k,  it is still tax deferred.

nawhite

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Re: Work doesn't offer a 401k match, still use it?
« Reply #16 on: November 11, 2014, 02:49:03 PM »
Do ira first (roth or standard).

If you are contributing more than the ira max (hopefully!) then try to max the work 401k too.

Be extra careful with that - you said "roth or standard" but if you or your spouse benefits from any kind of tax advantaged retirement plan during the tax year, you cannot deduct any portion of contributions to a traditional IRA.  source  Contributing to a Roth IRA is safe, since you cannot deduct the contributions to a Roth IRA in the first place, it is the distributions which are non-taxable after age 59.5.


Reread your source. How much you can deduct is based on your income, not solely whether you have a work retirement account or not.


Specifically: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work

Single: You're good up to $60k MAGI
Joint filling: You're good up to $96k MAGI

Asclepius

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Re: Work doesn't offer a 401k match, still use it?
« Reply #17 on: November 11, 2014, 08:27:17 PM »
It all depends on your income and how much money you have available to invest. 

If you are in the 15% bracket and only have $10,000 to invest, I'd go with $5500 to a Roth IRA and then the rest to 401K.

If you are in the 25%+ tax brackets and have a lot to invest, I'd go with 401K first until you max it out.  After doing that are you still in the 25%+ bracket?  If so, I'd go with a regular IRA.  If you fall into the 15% bracket, I'd go with a Roth IRA.

If the OP is in the 15% bracket, wouldn't their long term capital gains and qualified dividends be taxed at 0%? What then is the incentive to put your money inside of a Roth IRA or 401k?