One Man Explains Why He Stopped Contributing To His 401(k)

Just about every financial expert tells you not only to contribute to a company 401(k), but make sure you pay in enough to receive the company match. We can’t argue any differently, but tough times and changing priorities can make compelling arguments for dropping contributions.

Frugal Dad makes his case for doing just that. His beef against the 401(k) is its rigidity. By contributing to a Roth IRA and presumably other investments instead, he can tweak his contribution amount to match his ability to part with the money — rather than sticking with a pre-assigned amount deducted from his paycheck — while retaining the ability to withdraw funds without getting hit with a penalty.

To the writer, the freedom of not contributing to a 401(k) surpasses the benefits of participating. He doesn’t necessarily recommend the tactic to others and suggests they do their homework and talk to professionals before making a decision.

Why I Stopped Contributing to My 401k [Frugal Dad]

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  1. Bsamm09 says:

    I’d rather contribute to a Roth first also. I don’t like the investments offered in most of the 401(k)s I have seen. Also, you can pull out Roth contributions if you really need to.

    • Nigerian prince looking for business partner says:

      Also, when tax rates go up to deal with the national debt and the higher ratio of retirees to workers, most people will be better off if they pre-paid their taxes via a Roth, instead of deferring them to the future with a 401k.

      • BurtReynolds says:

        When I retire in 2047 (if I am lucky), I am guessing that taxes will either be much higher or America will have dissolved into a third-world pit of despair. I hope everyone is enjoying those low capital gains taxes.

    • MonkeyMonk says:

      I’d love to contribute to a Roth as well but, alas, some of us don’t qualify anymore.

      • Slaughterhouse5 says:

        Lucky you! HAve you considered a backdoor Roth conversion?

      • BurtReynolds says:

        I am in a gray area and don’t know what I can do. I got married in October and I think our combined incomes are over the limit, but I also don’t know if we are filing jointly this year, or if that even matters. I’d like to get some more Roth money in there before it is too late though.

        Hopefully they raise the Roth limit soon. We just happen to live in the DC area, so while our salaries are “high” compared to most places, we are not exactly living in a mansion with a Mercedes in the driveway.

        • hansolo247 says:

          Exactly.

          A six figure household income is “baller” territory most places, but in the DC area it’s kinda median. Enough to have a smallish house and 2 cars, but not much else.

    • Tangurena says:

      I have both a Roth and Traditional (for each of IRA and 401k). I’m not 100% certain that Roth distributions will be tax-free by the time I retire (less than 2 decades away).

  2. Cat says:

    reasons for not contributing:

    1. Recent losses and market instability.
    2. Lack of company match.
    3. Need to eat and keep warm.

    • RandomHookup says:

      #3…Vastly overrated.

    • Bob Lu says:

      I agree with #1 and 2.

      For #3, if you have the option of 401K but need to not contribute to it so you can eat and be warm, chances are you are either doing it (it = your life) wrong or you did it wrong and are paying for it.

      • VintageLydia says:

        Eh, my near-minimum wage retail job offered a 401K so #3 could fit the situation of most of my former colleagues.

    • bikeoid says:

      Recent losses == current bargains. Better to buy low than buy high.

    • MonkeyMonk says:

      If your not investing your money in some manner you’re losing 3% to 4% annually courtesy of inflation. That’s guaranteed. If you’re turning down a company match of any kind then you’re just throwing free money away.

      I’ve been investing my money for two decades and even after adjusting for inflation I’m up a comfortable 6% … and I’m not an overly risky investor.

  3. JGKojak says:

    I hate articles like this, which ignore the fact that the majority of Americans have no 401-K, IRA or certainly any match.

    (PS I have those, so this is not sour grapes, just an observation)

    • Nigerian prince looking for business partner says:

      Is it really the majority of Americans? Does that include children, those with a traditional pension, 403b, etc.?

      • Velvet Jones says:

        The common quoted number is about 50% don’t invest anything. Now that number becomes shady, because they never break it down. Is that 50% of working people that have 401Ks available? 50% of all labor? Or worse, 50% of the population, which would be meaningless.

    • George4478 says:

      But why do they bother you? Were you upset about the Saab article since most Americans don’t drive Saabs? Did the 3DS, Verizon, or Xbox360 articles really tick you off since they ignored that most Americans don’t own these products?

      I don’t expect every article to apply to me and I’m don’t hate the ones that don’t, so your comment seems bizarre to me.

    • Gehasst says:

      It’s not the problem of not having the 401k, its not taking the time to be enrolled in the 401k plan. Quick survey of my smaller department here at work, I’m the only one putting money in the 401k and/or our ESOP (we are traded on NASDAQ & doing well). I’m 32 rest of them are 25 or younger. In my old department, out of the 30 people in there, everyone under 26 (90% of the group) are not doing 401k or ESOP.

      We don’t match that much on the 401k, but its still free money. I top off my Roth first week of Jan every year. I plan on having a pretty awesome retirement!

      • kennedar says:

        My husband and I have both been contributing to our company sponsored RRSP (Canadian version of 401K/Roth IRA I believe) since long we were 22 and got our first “Professional” job. Its frightening to know that at 27 we have more in our retirement accounts than some of our aunts & uncles who are in their 60′s!

    • spamtasticus says:

      Agreed. From this point forth. Consumerist must only write articles about things that affects every single person currently living in the 50 states.

    • Slaughterhouse5 says:

      Every adult in this country who has an income has either a 401(k) or equivalent or an IRA available to them. Every single one. And if you are really low income, the federal gov’t will actually offer tax credits to fund these plans.

    • Tangurena says:

      I’m working as a contractor, so I have to wait 90 days after starting each gig to be eligible to contribute to a 401k. Average job lengths in programming (here in Denver) run about 4-6 months, so that means about half the year I’m not able to contribute.

  4. Costner says:

    You find me an alternative that offers the returns of a company match and then we will talk.

    In my case my employer matches dollar for dollar up to 6%. If you put in 6%, you instantly earn 100% return on your money. No IRA or other investment vehicle offers that type of return, and you would be an idiot to not take it even if your investment choices are somewhat limited.

    On top of that, in an emergency you can take a 401(k) loan and the interest you pay on the loan is paid back to your own account rather than to the bank who controls your loan or credit card. If things get really bad and you need to liquidate the account, the penalties are high, but still much less than the 100% return you earn from your employer match, so I fail to see why anyone would NOT invest in a 401(k) unless you weren’t getting a match of any type.

    • wren337 says:

      No company match here, and I work for a major software company. Our retirement plan is that you stop coming in one day.

    • dolemite says:

      My employer used to match 5%, and I thought that was good. Then they dropped it to 3% with the excuse of “it’s the economy”. In reality, we had record profits that year.

    • Loias supports harsher punishments against corporations says:

      Thank you, someone caught this obvious flaw.

      Do whatever you want to do with the other 94% of your money, but you can’t beat 100% return rate. Invest in the most conservative thing possible if you’re risk-adverse, but good God, it’s free money!

    • Tallanvor says:

      Circumstances are going to be different for each individual.

      I work overseas and I don’t have an option to participate in a 401k. On the other hand, my company participates in a pension program where they contribute the equivalent of 6-9% of my yearly income (it’s a graduated program, so for the first part of my income 6% is contributed, and above a certain salary 9% is contributed).

      I also participate in a stock purchase plan, and I can expect to get some amount of stock every year as part of my bonus, but that vests over a 5 year period.

      I wouldn’t mind putting money into an IRA in the US as well, but you get raped by transfer fees by US banks, and if you have a foreign address, companies offering IRAs are apparently not allowed to offer you any advice whatsoever. –Don’t ask me what that’s all about.

    • RStormgull says:

      Ditto. 6% dollar for dollar matching. Discretionary contribution by the company at the end of the year (last several years it’s been 3% of my annual salary). Can’t turn away free money.

  5. Tim says:

    My company stopped its 401(k) match two years ago, right before I turned 21 (and therefore become eligible for a 401(k)). I haven’t started one yet, but people keep saying I should for the tax benefits and interest. Still doesn’t seem all that compelling to me.

    • Torchwood says:

      If you are 21 right now, NOW is the perfect opportunity to start socking away money for your retirement. Think of the time-value of money.

      • Kaleey says:

        Absolutely. The idea is that if you invest $5 a week for 100 weeks, then you have invested $500 which has grown to, say, $510. If you invest $500 at the end of the 100 weeks, you have only $500. If you retire 40 years from now, your money has 40 years to grow. Assuming your retirement date stays the same, you will NEVER have another chance for 40 years of growth if you don’t contribute now.

        Our 401(k) adviser always tells us “contribute early, contribute often, and contribute more”, since the money has more time to grown the longer it is invested, and I firmly believe that philosophy. My company doesn’t have a match (but we do have profit sharing), but if they did have a match you can bet I’d be maxing it out every week.

        If you really, really, REALLY can’t afford to contribute, then don’t – food and heat now are a bit more important than food and heat in x years. But I highly recommend changing things up so that you can start freeing up some money for that contribution, and reevaluate your position every time that you get the chance to opt back in.

        Yes, I am a bit of a 401(k) nut – but I really do think that a 401(k) (or an equivalent method of investing for retirement, like an IRA) is a great idea for anyone.

        • Nigerian prince looking for business partner says:

          “Our 401(k) adviser always tells us “contribute early, contribute often, and contribute more””

          Not that it’s bad advice but would a wealth management adviser recommend anything else when his commission is tied to your investments?

      • Antigone says:

        We’ve been contributing since we were 25. We are now almost 30 and our returns have been virtually zero, if not negative after this last quarter.

        • Slaughterhouse5 says:

          So you’re saying that you started contributing before a major drop in the markets (all markets) and you’ve netted out at zero during the past 4-5 years and you’re complaining? How much money would you have had if you had not contributed? (Answer – less than you do now).

    • chiieddy says:

      Agreed. My co-worker’s 19 year old daughter started working for Starbucks as a barista part-time while going to school. They offered her a 401k and she took it. Rate of return in 41 years will be astronomical. I wish I’d had that opportunity.

  6. TuxthePenguin says:

    “To the writer, the freedom of not contributing to a 401(k) surpasses the benefits of participating. He doesn’t necessarily recommend the tactic to others and suggests they do their homework and talk to professionals before making a decision.”

    You do know that you can change the contribution amount between every paycheck, right? There is nothing locking you into a certain contribution level other than your lack of activity.

    And not automatically contributing whatever the employer will match is just beyond stupid. Look at it this way – that “match” is instant return. Even if they only match 10%, your dollar just became $1.10 without any other work.

    • Nigerian prince looking for business partner says:

      That depends on your employer. I’m locked into the percentages that I request during the open enrollment period and then can get one change per year. It’s the same thing with our HSA contributions.

  7. madanthony says:

    My employer does an 11% match if I put in 2% of my pay. There is no other investment that is going to give me anything close to that – it’s basically a 500% return on investment just on the match…

    • aja175 says:

      Damn, where do I get an application for that company? Mine used to match 6 of I put in 2 but now they’ll only match up to 1%.

      • madanthony says:

        It’s higher ed. Benefits are great, but pay tends to be lower than the corporate world, raises are tiny, and opportunities for advancement are limited because nobody ever leaves.

    • Bsamm09 says:

      Do they match 11% on the 2% of pay or 11% of 100% of your pay?

    • Nigerian prince looking for business partner says:

      I think the math is trickier for those who have a 50% or a 25% match, with a solid cap. My previous employer had a 50% match, capped at 4% of salary. To get the 4% match, we had to invest 8%, which was tricky for the lower paid employees, who typically needed the money immediately.

      • clippy2.0 says:

        Unless you’re coming from a higher or equal paying job, its not hard to be on salary and put away 8%, as opposed to 5%. Not taking the full match is stupid, it’s essentially a bonus on top of your salary. I know my wife and my brothers companys both match, and they thought nothing of doing 10%, just because since they didn’t have the extra money before, they wouldn’t miss it when they invested it

        • Nigerian prince looking for business partner says:

          “Unless you’re coming from a higher or equal paying job, its not hard to be on salary and put away 8%, as opposed to 5%.”

          It’s very difficult to generalize about what’s hard and what isn’t when you don’t know salaries, family status, or other variables. There is a significant portion of the population that simply can’t afford to put away 8% of their salaries for the future when they need health care or housing now. Where I work, the majority of our technicians play the “either/or” game with health insurance and retirement. By the time they buy insurance, put away enough for an employer match, put money into their HSA, and play taxes, around half their paycheck is gone.

          I believe in heavily investing towards retirement but it isn’t always possible for everybody. I put away 6% and get a 4% match. I know it’s not enough but we truly don’t have any alternatives.

    • hyper6 says:

      My husband’s employer matches 3% of the first 50% he contributes, which might as well be nothing at all.

      • hyper6 says:

        Edit to add:

        We can only afford a 3% contribution right now, and so they match 3% of the first 1.5% of his contribution. For us, it worked out to be pennies.

      • Total Casual says:

        It’s *money for nothing* Hyper6. You should push your husband to enroll. Every 401k plan I’ve ever enrolled in has been pretty simple to get started, and every provider these days offers ‘target date’ retirement funds so he won’t need to spend time pondering which funds to invest in.

  8. Torchwood says:

    I will argue that the minimum that you should be contributing to a 401(k) should be the equivalent of maxing out your company match, otherwise you lose out on some “free” money. Having said that, if you change jobs that allows you to pull out the money, do so and drop it into a IRA so that you have more fiscal freedom.

    The mistake that people make is that they do not contribute ANY money to a retirement. The younger you are, the better off you will be in having a retirement income because of the time value of money. And, quite frankly, I am not expecting to receive ANY money that I have contributed over the years to social security. But, that’s a discussion for another article.

    • Nigerian prince looking for business partner says:

      I agree that it’s important to get the full match from one’s employer. In practice though, this can be impossible for those with lower incomes. If the choice is to get the company match or opt out of health insurance or get health insurance and no match, then the math becomes very difficult.

    • minjche says:

      We literally just had a meeting about this topic this morning, and your advise matches closely with the advice given by the representative from my company’s retirement fund broker people.

      So … good advice.

  9. sirwired says:

    Of course, if your company offers a Roth 401(k), that would probably be even better.

    In either case, you should ALWAYS contribute enough for the maximum company match. That is FREE MONEY! Even if you have to raid it in an emergency, the penalties STILL won’t be high enough to take the entire match away. And, in any case, do you REALLY want to build your retirement strategy on how easy it is to raid it well before retirement? Build an emergency fund instead… with the money you aren’t paying in the taxes you would owe with a Roth, you can easily cover payments into an emergency fund.

    And I don’t buy the argument about sticking with a pre-assigned amount. How is that a bad thing? Your payments into retirement are supposed to be a part of your monthly budget. And of course you can always adjust those payments as necessary.

  10. annecat says:

    I guess for once, I should give my company kudos. They put in whether or not you do.

  11. chiieddy says:

    I RTFA-ed and made sure it was clear, the writer agrees it’s hard to turn down free money.

    I have it set up so my 401k contribution automatically increases 1% each year in conjunction with my annual raise so I keep saving more. However, there have been times the past couple of years I knocked it down again because I just needed the extra cash since my increase in income was less than the increase in cost of living. I might have to do it again this year, depending on what the company is offering for a wage increase in 2012. For example, in 2012 I have to contribute a lot more to my health care costs than previously, and this will effect what I can put towards my 401k.

    I always put in up to the employer match and I doubt I’d drop below that figure ever. I can’t turn down the free money.

  12. tinyninja says:

    My boyfriend had nearly $100,000 in his 401k–contributed the full 6% each and every paycheck which was matched by his company. Unfortunately, his was the type where you only have access to your money if you leave the company, so during the crash he watched helplessly as it dwindled to $20,000.

    It’s money in a mayonaisse jar in the laundry hamper for him from now on.

    • sirwired says:

      Did his employer only have a single (horrible) investment choice? I know many 401(k)’s aren’t great, but most of them offer at least one “stable” fund that pretty much never goes down (and doesn’t earn much either.)

      • tinyninja says:

        His store ended up closing at the end of 2008 because of the recession (high end specialty food) and because the landlord raised the rent to sky high levels on 3 stores in the complex in order to kick them all out and put in a Dollar Tree. There was no other store in the state for him to go to–while the manager of the other location hadn’t been with the company as long, she was doing a great job so it would’t have been fair to give my BF her job. Many high level people with the company, some 20 year veterans, were also given the axe.

        So the cashout was involuntary. Anybody looking for a kickass specialty food sales guy in the Greater Seattle area? Currently he’s working for a boat store and is the best salesman in the region despite not knowing anything about boats. (His superpower is bullshitting.)

    • Costner says:

      That seems like a foolish move. Now is the opportunity to buy in low, and in a few years when the market bounces back, the returns will likely be impressive.

      This is exactly why if you monitor the trading activity of Warren Buffet and the other uber-rich, you will note they have been buying like crazy the past few years. In five or ten years those investments will most likely pay off huge returns.

      The worst thing to do in a market downturn is to pull out. When you do that, you have realized your losses. If you keep the money in and ride it out, the loss is only a mental loss and when the market comes back the loss is never actually realized. I know it is difficult to watch hard earned money disappear, but unless you can time the market perfectly and buy back in when it hits bottom… riding it out is the most logical choice.

      • Murph1908 says:

        Agreed. I don’t know how old her boyfriend is, but being mid-30s when the market tanked, I enjoyed buying at lower and lower prices.

        With the company match, I was already shielded from a 50% loss in value. And all during the low times, I am buying and buying, and loving it.

        If the boyfriend continues to buy, that 20k will go back up to 100k and more, and the 20k he should have put in would have gone up there too.

        So instead of thinking of it like he lost 80k. He should plan on getting that money back in the long run, and he’ll have lost more than 80k buy not buying now.

    • aleck says:

      My 401K did the same, but then it recovered. I am well above 2008 levels now. Hope he did not sell it all at the bottom.

    • Tangurena says:

      I understand that attitude which goes something like “if wall street is going to lose all my money, I can do that too, but at least when I burn it, I will be the one having pleasure from it.”

  13. MrHeartOfGold says:

    What if your health situation is such that you’re not expected to reach retirement age.
    Ive found that the rules for recovering your own money is much too restricted.

    My perspective is this… Wall Street requires your own money so much, that they’re
    in collusion with the employers to entice you to join their sinister game so much so that
    they’re kicking back part of the funds to the employers in the form of ‘company match’.

    In the end, they know they’ve GOT your money, that if you really want it back, you’re going
    to get hit with enough penalties so that the ‘company match’ is eaten up in their penalty
    fees.

    Its ALL a ponsi scheme. It is necessary to dupe the current contributors into participating
    so as to be able to pay back the current retirees. But, after the baby boomer wave have all
    entered retirement, the house of cards will fall down hard on top of them.
    retirees.

    • Slaughterhouse5 says:

      You’re not really very informed about this, are you.

      Generally employers don’t want to continue defined benefit pensions because they are a huge liability. Virtually everyone but civil servants are now in defined contribution plans.

      It is a misconception that the only place you can invest is in “the market”, ie stocks. By statute, all plans must include a variety of investment options. Not all are as low cost as we would prefer, but are available. These include stocks, bonds, mm funds, REITs and stable value funds. Anyone who lost 80% in the market drop of a couple of years ago had an frightfully aggressive asset allocation plan.

      Even if the lowest-return, most conservative choices are made, it is important to remember that we have a very limited amount of tax-advantaged space, and that our bonds and interest-bearing investments should be placed there. As others have indicated, we should at the very least invest in these plans up to the company match – it is indeed free money.

      And there are several ways to withdraw funds prior to 59.5. There are the aforementioned loans (with their own caveats), hardship withdrawals, and 72t withdrawals for early retirees.

      Another advantage is that these qualified plans – depending on state – can offer signficant legal protections for your assets. That may not seem to be important, but if you are forced to declare bankruptcy for say medical reasons, you may be able to protect assets you’ll need to live.

  14. maxhobbs says:

    My wife’s employer matches her 6% with 12% and it is cash. Floors me that they give her double what she puts in.

    • VidaBlueBalls says:

      I worked at a place that would put 12% in if you put in 3%. Yet, the medical insurance they offered sucked and they didn’t offer vision or dental. Odd.

  15. quail says:

    One of the issues I’ve seen with some companies’ 401(k)s is that a company can change plans that they offer. Depending on the structure of the plan, the money in the old one can be frozen and unavailable for a rollover. (Know of two people who’s had this happen at their jobs.)

    One of the other problems is that a company could pick a junky plan. If a company does offer matching contributions and you can afford it, you should contribute up to the maximum for matching funds. In the end Roth and other investment portfolios are better because you are more in control.

  16. Buckus says:

    One of the advantages of the 401K that don’t seem to be listed is that because you invest it tax free, that portion that you would have normally paid to taxes is allowed to grow, so you potentially have a better return rate.

    • Nigerian prince looking for business partner says:

      A 401k isn’t tax free, it’s tax deferred. It comes out of your paycheck pre-tax and you pay taxes on principal and growth when you withdrawal it at retirement.

  17. ajaxd says:

    The title is somewhat misleading. It implies that somebody stopped contributing to 401k in general favor of other options. The reason for that is that his 401k plan wasn’t good, particularly not allowing to choose your own investments. For most people it’s not true and they should stick with 401k. Typically you can choose your own investments and how much to contribute; at least that’s how it was at all the jobs that I had.

  18. consumeristjohnny says:

    I’ll stick with putting in my 6% and having my company match. If this guy wants a really good strategy that I have used, it is to keep putting in the maximum the company will match, and then take out a loan against the 401K. . Most companies will payroll deduct that over a 6 month to 5 year payback time. I generally take out the loan once a year and invest that money in places where I have higher rates of return or use it to make sure I stay debt free. The 401K loan is not really a debt, since I am paying 4.25% interest to myself. The current climate is great because I am buying more shares at a lower price. I am over 20 years away from retirement and the stock market will rebound to the levels they once were. Real estate on the other hand, will not likely reach the levels necessary to get anything out of it. A 100k home that lost 50% of value in the crash would need 8 years of 10% appreciation to get back over the 200k mark, and that does not take into account inflation.

    • Kaleey says:

      That is a very interesting tactic. I don’t think that I’ve ever heard anyone do that – but as long as you don’t get hit with fees and such constantly, it seems like it would work. Is your 401(k) invested in very stable funds, or do you mix it up with some riskier investments?

    • Slaughterhouse5 says:

      Unless you have a really crappy 401(k) I would guess that you are taking on unnecessary risk in seeking “higher return”. And I think you don’t understand what debt free means if you are taking 401(k) loans to ensure you’re debt free.

      It should also be pointed out that if you were to lose your job, the 401(k) loan become due immediately. If you don’t have the cash to pay it back, you will owe the taxes on amount outstanding plus a 10% penalty.

      Retirement investment vehicles are intended to help us provide for ourselves in our later years.

  19. dilbert69 says:

    This is crap. The entire point of devoting a fixed amount of each paycheck to a 401K is that if you never see the money, you can’t spend it.

    • godospoons says:

      There’s also the fact that a Roth IRA maxes out at $5-6K a year (depending on age), whereas a 401(k) maxes at $16,500-22K (again, on age). For those maximizing savings, employer plans are far better for mass savings.

      However, I miss how the Roth has more flexibility… I can adjust from 1 to 100% of my salary into my 401(k) without withdrawing for the year. I assume the OP’s plan doesn’t allow for changes in the contribution?

  20. rpm773 says:

    My employer doesn’t do any matching. I don’t really see that as “they don’t give us any matching funds…boo!”. Rather, I see matching funds as just a part of the entire compensation package, along with raises, bonuses, benefits, and salary. As it stands, I’m getting my compensation without any strings attached: rather than matching funds, we get Xmas bonuses.

    With respect to the article and to the above, I’m kind of glad my employer doesn’t match. I do max out my 401k, but if I was unable to max it out and, as a result, leaving matching funds on the table, I’d have to make some hard choices.

  21. aleck says:

    There is a lot of confusion of apples and oranges. There are two aspects to the retirement investment. First – freedom of investment in 401K or your own similar account e.g. IRA. Frugal Dad makes a big deal out of it. Frankly speaking most people THINK they can do better than a basic mutual fund, but in reality very few people can. Most 401Ks are deliberately “restrictive” in order to prevent people from shooting themselves in the foot with their crazy investments

    The second aspect is taxes. Tax deferred vs. taxable account or IRA vs Roth IRA. Millions of pages were written debating pros and cons of each. At the end of the day, it all depends on many factors. There are no rules of thumb.

    And by the way, for most people it is possible to invest in both 401K and Roth IRA. These are not mutually exclusive. It would actually be a wise strategy to allocate your retirement between the two types of accounts to maximize flexibility in the future.

  22. Matthew PK says:

    I contribute to both a 401k *and* an IRA…
    Free money *and* a tax shelter….

    The headline gives a terrible impression. No wonder most people have no savings at all.

  23. gabrewer says:

    Rather than a 401(k), my employer has a SIMPLE IRA plan. They match up to 3% of our pay, and once the funds are in the account, each employee then has total control over it. It’s with Vanguard, so there is a wide variety of options for reallocating investment options. Likewise we could move it elsewhere if we wanted. I don’t know for sure if all SIMPLE IRA plans are structured this way, but in our case it seems to have big advantage over 401(k)s.

  24. Bad_Brad says:

    Why not do both?

    Fund your 401(k) just enough to get the company match.

    Then set aside funds for a Roth IRA.

    This ain’t rocket science, folks.

  25. duncanblackthorne says:

    I’ve never made enough money to have retirement accounts, and with the way the world is going, I don’t see any reason to do so anyway. I doubt I’ll live long enough to use any of it anyway, and I have no children or family to inherit from me anyway, so what’s the point? I’d rather live my life now, while I still can. Besides, if I had been doing that all along, and not being able to do anything other than work in the meantime, by now I would have lost it all when the world came crashing down around our ears.

    • Slaughterhouse5 says:

      You’re saying you have absolutely no money to save at all. Not $100 per year?

      • VintageLydia says:

        Shockingly, some people really do live paycheck to paycheck. Many of these people have little choice in the matter. Considering the huge numbers of people who live below the poverty line in this country, I’m surprised by your surprise.

        • Slaughterhouse5 says:

          I’m surprised by your naivte. There is not a single person in my personal experience (which does include people living in poverty at sometimes horrifying levels) who does not regularly make choices for what many of us would consider luxuries in lieu of saving for the future. Paycheck to paycheck rarely means that there is not a spare $5 per week. While that amout seems paltry, over the course of a working life $5 per week is $10-20k – considerably more than $0.

          Regardless of the amount of money one has, unless he saves for a time when he cannot work, he will be reliant on the charitly of others.

  26. blinky says:

    1. IRAs and 401Ks are not mutually exclusive. I guess if you’re only thinking of putting away $5000/year then the IRA is okay.

    2. A regular IRA (or 401K) will increase the amount you can contribute since you have the tax savings now which you can put away. If you’re only contributing $5000, again, this seems like it would be a way to make it $6000 that you save. I guess a Roth would be good if you have more disposable income than you can save in all your accounts.

    3. Freedom to raid the piggybank is not necessarily a good thing.

    • blinky says:

      oh, and management fees on my company’s 401K (for an index fund, at least) are like .02%, which is pretty low even compared to ETFs (or brokerage fees).

    • Slaughterhouse5 says:

      I agree – the idea that retirement money should be accessible now is anathema to me. Thats why its called saving for retirement. Avoiding the use of a 401(k) or equivalent simply because you want access to your money means you’re not really saving for retirement; you’re saving for a shorter time frame.

      I work in academia, and while the salaries are not horrible, they’re not great. That being said, my employer offers a rather good retirement plan provided I take advantage of it. Untill recently it offered TIAA-CREF investment choices, which are generally quite good it not perfect. We recently switched to Fidelity, offering a different array of not quite as good choices (higher expense ratio on all but a couple funds). I had a choice of rolling over 100% into Fido ro keeping my current contribution in TC and directing future contributions into FIDO. I chose the latter because the fixed income options were cheaper and I retained access to the TIAA Real Estate and Traditional Stable Value options – two unique vehicles difficult to match with other providers. My new contributions go to Vanguard index funds through FIDO, and I rebalance the old funds into more fixed income as necessary to meet my target asset allocation.

      My employer offers a 401(a), wherein 9.3% of gross salary is deposited on behalf of each employee after two years, immediate vesting. I can and do choose to invest in a 403(b) at up to the IRS max ($17k this year) which I can change up to four times per year. Since I’m still modestly compensated I can still contribute to a Roth at the max, which in part acts as an extended emergency fund for contributions I’ve made. If I still have money left over, I can sink $5k or more into Ibonds either by buying at the bank in the next two weeks or by overpaying 2011 taxes and specifying the refund in Ibonds.

      If I maxed out my own contributions, I would be able to defer taxes on $17k, permanently shelter $5k from taxes while retaining immediate access to the money, and further defer/shelter taxes on $5k which I can access within one year.

      While I agree that income taxes will in all likelihood be higher in the future, conversely my income will in all likelihood be lower.

  27. kungfu71186 says:

    The company I am with goes through vanguard and from there i can do it anyway i like. So, because I am so young, i chose to do Roth IRA @ 12%, my company matches 6%. That’s quite a bit of extra money that gets invested. While i can’t specially pick which stocks i want, i just have to trust vanguard makes the best decision for me. Although right now I have a very aggressive portfolio.

  28. newmie says:

    Unfortunately, 401Ks offered by companies are usually rather poor investments. The options are almost always crap sold, to the company by people like John Hancock Investments ( this is a turkey I got stuck with once). If no company match was included, I could ALWAYS do better on my own.

  29. Sad Sam says:

    Reasons to max out a 401k, reduce your tax exposure, shelter more money (this year you can contribute up to $16,500 in a 401k, more if you are eligible for catch up contributions) vs. $5000 in an IRA (Roth or otherwise). Many 401ks offer both a pretax, the traditional, and a post tax Roth option. To get a match if you get one, I don’t, Mr. Sam got $5000+ in match this year.

    And as others have said, you can contribute both to a 401k and an IRA.