Should I Contribute to a Non-Matching 401k)?
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Should I Contribute to a Non-Matching 401(k)?
A 401(k) plan is a common retirement savings vehicle offered by employers. Many companies provide a matching contribution to encourage employees to participate in this plan. However, what if your employer doesn’t offer a matching contribution? Should you still contribute to a non-matching 401(k)? Let’s consider the benefits and drawbacks to help you make an informed decision.
Benefits of contributing to a non-matching 401(k):
1. Tax advantages: One of the significant benefits of a traditional 401(k) is the tax advantage it offers. Contributions to a 401(k) are made with pre-tax income, which reduces your taxable income for the year. This means you can lower your tax liability while saving for retirement.
2. Tax-deferred growth: Another advantage of a 401(k) is the potential for tax-deferred growth. Any investment gains within the account are not subject to capital gains taxes until you withdraw the funds during retirement. This allows your investments to grow faster over time.
3. Automatic savings: By contributing to a 401(k), you establish a habit of consistent savings for your retirement. The contributions are deducted automatically from your paycheck, making it easier to save consistently without much effort.
4. Creditor protection: In many cases, funds held within a 401(k) are protected from creditors. This means that if you encounter financial challenges such as bankruptcy, your retirement savings would be shielded from potential creditors.
Drawbacks of contributing to a non-matching 401(k):
1. Missed opportunity for free money: The most significant disadvantage of contributing to a non-matching 401(k) is that you miss out on potential employer matches. Employer matches are essentially free money that boosts your retirement savings. If your employer offers a matching contribution, it’s generally recommended to contribute at least enough to maximize the match.
2. Limited investment options: 401(k) plans often come with limited investment choices compared to other retirement accounts, such as IRAs. This can restrict your ability to diversify your portfolio or invest in specific funds or stocks you prefer.
3. Early withdrawal penalties: With a 401(k), withdrawing funds before the age of 59½ may result in early withdrawal penalties, which could include taxes and an additional 10% penalty. This liquidity restriction may not be desirable if you anticipate needing access to your savings before retirement.
So, should you contribute to a non-matching 401(k)?
Ultimately, the decision to contribute to a non-matching 401(k) depends on your unique circumstances. If you have already maximized contributions to other retirement accounts like an IRA, a non-matching 401(k) can still provide tax advantages and automate your savings. However, if your employer offers a matching contribution, it is generally wise to contribute enough to secure the full match, as it provides an immediate and substantial return on your investment.
Regardless of whether your 401(k) has an employer match, it’s crucial to evaluate your overall retirement savings strategy. Consider factors such as your financial goals, investment options, and the presence of a well-diversified portfolio. If you’re uncertain about the best approach, consulting a financial advisor can provide personalized guidance based on your unique circumstances.
My employer matches $1 for every $5 I put in. What percentage should I contribute to my 401k for the employer match step 2 of FOO?
I wasn't financially free until my 40’s and I’m still in my 40’s, bought my third house already, earn on a monthly through passive income and got 4 out of 5 goals, just hope it encourages someone that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless your age INVEST and change your future! Investing in the financial market is a grand choice I made. Great video! Thanks for sharing!Very inspiring! I love this
These dudes only help people who don't need any.
Taxes is the only reason
I would say that you’re likely to contribute more than just the employer match of the 401k… so why wouldn’t you contribute to the 401k even if you don’t get the match. I mean I get a 6% match but I’m still contributing around 25% to my 401k overall. It’s nice to get the match but big picture is getting that retirement account as high as possible.
I am wondering what your pension is estimated to be at retirement. I worked for an employer tgat offered a pension for employees that were vested by 2012, unfortunately they stopped adding money to it after that so it’s just accruing interest… though my current estimate is that by 65 it’ll provide about $8k a year. Not a lot but will be nice as something on top of everything else.
401(k)s are awesome. When they have some sort of match. Without that match, they are expensiiiiiiiive later on. Unless it really reduces your taxable income, no. Don't contribute to it. Use post tax dollars and put it into a Roth IRA to bolster savings from the pension.
Omg the question I’ve always been wondering!!
I love the FOO! I think it's so helpful to figure out exactly what to do with my next dollar.
I have no 401K option. I do Roth IRA priority 1 and Taxable priority 2. Is this a reasonable approach? Roth is always maxed out. Then switch to brokerage.
Pensions do exist. My husband and I both had them. We also contributed to our 401ks without a company match. Over time we built a very nice retirement plan. Retired early 52 and 55.
Research employers. There are so many great options. Build your skills based on those employer requirements.
For me a non match traditional 401k is not a good option.
We max roth options and get my max employer match in my 401k.
Everything else we invest outside of retirement in traditional investment options.
Only after maxing out Roth.
Thank you! You read my mind with this video. ❤
I wouldn't. You have to pay income tax on it. Either now or later.
I would put in in an index. No taxes on withdrawals up to 40k for singles, and 80k if you're married.
Matching 401k? I haven't had one of those in 20 years. My current employer puts money in when it gets top heavy.