Employer 401k no longer matching. What to do?

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YoungBoglehead
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Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

Hi All,

Thanks in advance for even reading this thread. We're so lucky to live in a time where we can hop on a forum and helpful people are always ready to help and expect nothing in return.


So to the issue, in 2013 my employer matched up to 4% of my 401k contribution. They have changed their policy to cancel that in 2014 and move to a stock option deal.

I was contributing the 4% of my income to my 401k before. Now that they are not matching, do you guys have any suggestions?

Also, inside my 401k I was just putting money into a 2050 target retirement plan fund where expense ratios were not optimal and to do anything else within the 401k I also get hit with expense ratio fees. I'm thinking it's better to invest that money myself outside of my 401k in funds I can choose with lower expense ratios.

Thoughts?
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Kerdaboy
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Re: Employer 401k no longer matching. What to do?

Post by Kerdaboy »

Do you have a listing of the funds in your 401k and their expense ratios?
Topic Author
YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

Kerdaboy wrote:Do you have a listing of the funds in your 401k and their expense ratios?
I can get that. I'll reply with it shortly, however the ER on basically anything I choose is higher than I'd prefer. I'm mostly wondering if I should contribute less, nothing, or the same amount.

First, here is the 2050 fund my 4% is currently going into today:

Image

second, the following two pictures are other 'available funds' (couldn't fit into one pic)


Image

Image


this final picture is a more detailed breakdown of my 2050 retirement fund my 4% goes into today:



Image



Also, I did call and ask if I can basically 'choose my own funds' to invest in within my 401k. The answer was yes, our 401k provider will let me do that, but they will charge hefty fees which make it a bad decision.
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retiredjg
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Re: Employer 401k no longer matching. What to do?

Post by retiredjg »

Part of this depends on how much money you save in a year. If you only save $5,500, you could (if eligible) make deductible contributions to tIRA (where you have unlimited good choices) and get the same tax treatment as contributing to the 401k.

If you are not eligible to deduct contributions to tIRA or if you save more than $5,500, you should use the 401k even if the expense ratios are high. Even very high. Taking a quick look at your choices, you don't have high expense ratios at all.

Or some people would suggest Roth IRA up to the $5,500 and the rest into the 401k. Opinions differ on this. It partially depends on your tax bracket.
bungalow10
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Re: Employer 401k no longer matching. What to do?

Post by bungalow10 »

The target date fund you chose looks like it has a pretty good expense ratio, I'd stick with that.
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Bogle101
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Re: Employer 401k no longer matching. What to do?

Post by Bogle101 »

Also, why are you not putting in the max of $17,500 a year into the 401(k). The 2050 is not so terrible that you should just be putting in the match
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BrandonBogle
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Re: Employer 401k no longer matching. What to do?

Post by BrandonBogle »

While these ERs are not "absolutely amazing", they are FAR from "bad". Included in there are some of the most popular Vanguard funds.

Vanguard Inst Index Inst Plus is Vanguard's S&P 500 fund. You can do 80% and 20% Vanguard Ext. Mkr Ind. FD Inst to approximate Vanguard's Total Stock Market (http://www.bogleheads.org/wiki/Approxim ... ock_market). You also have Vanguard Total Intl Stock Ind for your ex-US exposure and Vanguard Total Bond Mkt for your bond exposuure. I see the makings of a Three Fund Portfolio (3FP) here (http://www.bogleheads.org/wiki/Three_fund_portfolio)!

Personally, I would continue to invest HEAVILY into this 401k with a 3FP unless you feel there are better options.
awval999
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Re: Employer 401k no longer matching. What to do?

Post by awval999 »

You have really good choices and options. I don't know why you feel like you don't.
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Watty
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Re: Employer 401k no longer matching. What to do?

Post by Watty »

Those are fantastic ER's for a 401k. Not having a match is not great but those ER's are likely in the top couple percent of all 401K plans.

The tax deferrals still make the 401K a great deal.

If you want and are eligible for a deductible IRA(or Roth) to save a small sliver of expenses then you can max that out first then put any additional retirement funds into the 401K.

A huge advantage of the 401K though is that it automatically comes out of your paycheck so that you will never see the money and there is no risk that you will not actually make the IRA contribution.
TSR
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Re: Employer 401k no longer matching. What to do?

Post by TSR »

Looks like you've got good choices and you picked a good fund. I'm in the camp that says that the 401k benefit is good even without the match -- i.e., you don't pay tax on that money until retirement, which saves you money NOW. Some would say you should contribute to a Roth IRA instead, but this is based on certain assumptions about how your income will look in retirement. If you want, you could split the difference and contribute some to both, but folks here would probably need a broader picture of your finances before knowing what is the best choice for you.

Whatever you do, don't get too clever for your own good. A perfectly reasonable plan would be to contribute as much of your income as you can to that target-date fund for as long as you keep working there. While that may not be the absolutely optimal plan, I guarantee that you will not regret that choice at some later date.
terrabiped
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Re: Employer 401k no longer matching. What to do?

Post by terrabiped »

The nice thing about a 401k is the automation. That money is taken out automatically from every check, before taxes, without you ever having to think about it, or change your mind. That happens month in and month out, year in and year out, regardless of what's going on in your life or the markets. This is one of the easiest ways to save and invest, or so it seem to me. I've always contributed as much as I could to my 401k.
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YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

awval999 wrote:You have really good choices and options. I don't know why you feel like you don't.
I guess my thinking (and this could be a reply to everyone) is that since they are not matching, I could stop contributing, open a ROTH or some retirement account under my own name, and get the expense ratios I get in my taxed accounts from VTI/VXUS/BND Vanguard funds (assuming this is possible)

and then I'd have lower expense ratios in a retirement account with certain funds of my choice.

I guess it's not all that bad. Also, this may be my stupid decision/thinking but I've never been a big fan of putting too much away in a retirement account where I can't touch it until 50+ (aside from emergencies/first house)

I like my money being more available to me and I'm very disciplined with my spending habits and investing
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BrandonBogle
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Re: Employer 401k no longer matching. What to do?

Post by BrandonBogle »

YoungBoglehead wrote: I guess my thinking (and this could be a reply to everyone) is that since they are not matching, I could stop contributing, open a ROTH or some retirement account under my own name, and get the expense ratios I get in my taxed accounts from VTI/VXUS/BND Vanguard funds (assuming this is possible)

and then I'd have lower expense ratios in a retirement account with certain funds of my choice.

I guess it's not all that bad. Also, this may be my stupid decision/thinking but I've never been a big fan of putting too much away in a retirement account where I can't touch it until 50+ (aside from emergencies/first house)

I like my money being more available to me and I'm very disciplined with my spending habits and investing
Yes, those do have lower ERs, but two things. Roth vs Traditional is a separate discussion as to which is more fruitful (no more taxes or immediate reducing in taxes). But the big thing about the 401k is being able to put in more than $5,500/year. If all you are able/willing to put in is $5,500, that is one thing -- however, I think that if you have the opportunity to put $10k, $15k, $17.5k + $5.5k a year, then the higher expenses would well be worth it. Plus, if you ever leave your company, you can roll it over into a future 401k (if allowed) or to an IRA and invest it in VTI/VXUS/BND for lower expenses.
Chadnudj
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Re: Employer 401k no longer matching. What to do?

Post by Chadnudj »

Also, this may be my stupid decision/thinking but I've never been a big fan of putting too much away in a retirement account where I can't touch it until 50+ (aside from emergencies/first house)

I like my money being more available to me and I'm very disciplined with my spending habits and investing
Well, you're also ignoring a major advantage of retirement accounts (Roth/traditional, 401k/IRA) -- namely that they grow tax-free (until withdrawal in the case of traditional accounts). Having a 15% drag (or more) in terms of capital gains/dividend taxes on your returns simply to have "access" to them before 59.5 is a pretty big sacrifice....even the early retirement extreme people wisely tend to maximize retirement accounts BEFORE turning to regular taxable accounts.
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Re: Employer 401k no longer matching. What to do?

Post by retiredjg »

YoungBoglehead wrote:I guess my thinking (and this could be a reply to everyone) is that since they are not matching, I could stop contributing, open a ROTH or some retirement account under my own name, and get the expense ratios I get in my taxed accounts from VTI/VXUS/BND Vanguard funds (assuming this is possible)
Taxed accounts?

I think you have some misunderstandings about how this should be done. There should not be any taxed accounts (for retirement) until you have completely filled your 401k and a Roth IRA. Yes, we know you don't want to tie the money up, but that is probably not a reasonable desire unless you just want to have less money in the end. Why do you want the money available?

Even if you do insist on having the money available, it is nuts to put retirement money into taxable before putting it into Roth IRA. In taxable, your earnings get taxed. In Roth IRA, the earnings don't get taxed. In either account, your contributions are available at any time. So clearly Roth IRA should come before a taxable account.

Your general question can't be answered without knowing more. Here's just some general advice. If 4% is all you are saving, that is not enough. The exception is if you are paying off high interest debt such as a student loan. If you are saving 4% in the 401k and other money somewhere else, it probably should not be "somewhere else" if it is for retirement. The exception is if you are putting it into Roth IRA and are in a very low tax bracket (15% or less). What containers you put the money in (tIRA, Roth IRA, 401k etc) can't be known without knowing more about your situation, particularly how much money you save and what your tax bracket is.
an_asker
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Re: Employer 401k no longer matching. What to do?

Post by an_asker »

YoungBoglehead wrote:[...]I like my money being more available to me and I'm very disciplined with my spending habits and investing
Something does not quite add up. If you are disciplined, your money will soon start to accumulate where you won't need it all to be available to you. And then, why keep it in taxable accounts? Worse case, I assume you are contributing to a Roth IRA every year to the max. Best case, you would contribute the max to your 401(k).
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YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

retiredjg wrote: Taxed accounts?

I think you have some misunderstandings about how this should be done. There should not be any taxed accounts (for retirement) until you have completely filled your 401k and a Roth IRA. Yes, we know you don't want to tie the money up, but that is probably not a reasonable desire unless you just want to have less money in the end. Why do you want the money available?

Even if you do insist on having the money available, it is nuts to put retirement money into taxable before putting it into Roth IRA. In taxable, your earnings get taxed. In Roth IRA, the earnings don't get taxed. In either account, your contributions are available at any time. So clearly Roth IRA should come before a taxable account.

Your general question can't be answered without knowing more. Here's just some general advice. If 4% is all you are saving, that is not enough. The exception is if you are paying off high interest debt such as a student loan. If you are saving 4% in the 401k and other money somewhere else, it probably should not be "somewhere else" if it is for retirement. The exception is if you are putting it into Roth IRA and are in a very low tax bracket (15% or less). What containers you put the money in (tIRA, Roth IRA, 401k etc) can't be known without knowing more about your situation, particularly how much money you save and what your tax bracket is.
I guess I need to learn more about IRAs and retirement accounts. To respond to the person just below you, I save roughly 40%+ of my income. While making 6 figures, maintaining a pretty inexpensive lifestyle and saving and investing everything. Without assistance (and giving quite a bit of money away to needy family) I've paid off all debts and now have about 100k in investments in taxable accounts. Probably 16k of that is in my 401k just from my standard 4% contributions. I'm aware I'm missing out on some huge benefits with the retirement accounts, but I guess my reasoning for putting my money in taxable accounts is this.

One of my life plans (as weird as this sounds) is to save up 1+ million in the next few years, and then one day to give most of it away to people who grew up in poverty as I did and it would come with a lesson. I imagine I'll do this before retirement age. There are a few reasons I can think of that I may want my invested money available to me before retirement, but partially is because I'm sure there are reasons I can't think of yet. I may be making a mistake there but I'm still trying to figure it all out. I guess this is why I haven't put more money into retirement accounts. I don't just want a large sum of money to spend when I'm retirement age, I may want to live a little before then, and I had been thinking the only time I can touch that money without massive penalties is when I wanted to purchase my first home or in the case of emergencies
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Drage13
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Re: Employer 401k no longer matching. What to do?

Post by Drage13 »

My $0.02...

Max your IRA. I would suggest Roth over Traditional, but as others have noted, that is a different discussion than what you are asking. I say Roth is a no-brainer, because you're concerned about having access to the funds before age 59.5. Roth contributions can be withdrawn at any time for any reason. Winner-winner, chicken dinner.

Then throw whatever you have left to save for the year into your 401(k). Only after you've maxed that should you consider after-tax investing.

This is all assuming that all of your investing is for retirement, not for earlier consumption.

Lastly, you are right that your expense ratios are marginally higher in the 401(k) than outside the 401(k). However, in a world where 401(k) plans include wrap charges and such that can/do bring expense ratios up over 2%, complaining about yours.... I have the world's smallest violin playing for you right now. :wink:
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YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

Drage13 wrote:My $0.02...

Max your IRA. I would suggest Roth over Traditional, but as others have noted, that is a different discussion than what you are asking. I say Roth is a no-brainer, because you're concerned about having access to the funds before age 59.5. Roth contributions can be withdrawn at any time for any reason. Winner-winner, chicken dinner.

Then throw whatever you have left to save for the year into your 401(k). Only after you've maxed that should you consider after-tax investing.

This is all assuming that all of your investing is for retirement, not for earlier consumption.

Lastly, you are right that your expense ratios are marginally higher in the 401(k) than outside the 401(k). However, in a world where 401(k) plans include wrap charges and such that can/do bring expense ratios up over 2%, complaining about yours.... I have the world's smallest violin playing for you right now. :wink:
Lol.

As for the bolded part, I feel like an idiot for not knowing this. I need to research this in more detail today, sounds like I've been making a mistake!

Thanks guys.
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leonard
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Re: Employer 401k no longer matching. What to do?

Post by leonard »

an_asker wrote:
YoungBoglehead wrote:[...]I like my money being more available to me and I'm very disciplined with my spending habits and investing
Something does not quite add up. If you are disciplined, your money will soon start to accumulate where you won't need it all to be available to you. And then, why keep it in taxable accounts? Worse case, I assume you are contributing to a Roth IRA every year to the max. Best case, you would contribute the max to your 401(k).
OP - you are making a very bad strategic error.

You sound like you are attempting to save a lot of money in the next few years - you said a million plus. Even if you max out your retirement options (401k, Roth and TIRA) - you will still have a massively taxable heavy portfolio. You will wish you had more tax advantaged money just to help rebalance the portfolio - let alone getting a higher tax advantaged rate of return.

Also, there is no need to have a majority of the portfolio "available". Bite the bullet - contribute the maximum to the 401k and your Roth, etc. If you are as successful saving as you say, you will have plenty in taxable anyway.
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Watty
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Re: Employer 401k no longer matching. What to do?

Post by Watty »

The Vanguard 2050 fund at Vanguard has an ER of 0.18% compared to your 0.26% for a difference of 0.08% .

If you have $10K in the account that would cost you an extra $0.80 a year. You could barely mail one check to Vanguard for that so while there can be good reasons to max out and IRA or Roth first saving on costs is not a major factor.

The 401k also allow you to easily dollar cost average your savings every payday which cam make a dignificant difference.

The Roth vs. IRA(or 401k) choice has no one right answer and for many people the best plan is to have a mixture of account types. Personally I favor a deductible IRA or 401k unless some of these apply;

1) You are early in a career path that will lead to high income (Doctors, some lawyers, etc)

2) You are able to max out all your tax preferred accounts, after that a Roth looks more favorable since a dollar in a Roth is worth more than a dollar in an IRA that will be taxed some day.

3) You are near retirement so your retirement situation is more predictable.

You also need to remember that if you don't choose the Roth and that was a mistake then you may be able to get a "do over" and do a Roth conversion later.
retiredjg
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Re: Employer 401k no longer matching. What to do?

Post by retiredjg »

YoungBoglehead wrote: I save roughly 40%+ of my income.... One of my life plans....
Ok, that puts things in a very different light. You are making a lot of money, you are saving a lot of money, and most of it is not for retirement.

I would suggest you do things just a little differently. You need to provide for yourself first. You may not always make a lot of money. Life can take some shocking turns. And something might occur that changes your plan.

But let's assume that you do exactly what you have in mind today. It would still be reasonable to provide for your own future before providing for others. Why not save 15% for yourself and 25% for others? When you reach the point where you have enough saved for your retirement (since you started so early, this could come sooner for you than others) then all the money you save could be for others. Yes, your million dollars for the YoungBoglehead Foundation might come a little later, but it would be more likely to actually survive because the future of YoungBoglehead him/herself is secure.

If you save 15% for yourself, you could fill a 401k and a Roth IRA (either through direct contribution or back door) each year, secure your future, and put the rest into your charitable giving pot. And the part going into the charitable pot might even be in a lower tax bracket. Would that be such a bad idea?
an_asker
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Re: Employer 401k no longer matching. What to do?

Post by an_asker »

Watty wrote:The Vanguard 2050 fund at Vanguard has an ER of 0.18% compared to your 0.26% for a difference of 0.08% .

If you have $10K in the account that would cost you an extra $0.80 a year. [...]
Just to fix the math --> 0.08/100 *10000 = $8.

Granted, it should not be a big deal for someone with a six-figure income. ;-)
niceguy7376
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Re: Employer 401k no longer matching. What to do?

Post by niceguy7376 »

OP,
It might be in the best interest of you and the board members if you can post all the info in the format requested.
http://www.bogleheads.org/forum/viewtopic.php?t=6212

There might be more meaningful / tax efficient / quicker goal achieving if we can understand your current situation and your future goals.
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YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

I'm pretty sold on keeping more in retirement accounts after this thread. Especially the IRA/401k.

As to the very last post above ^ I plan on sometime soon making another thread in that format with all details in there asking for advice. Not quite yet, busy work week.
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Topic Author
YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

So.. separate question now.


If I want to open an IRA account (or just learn more) how would you guys suggest I do this? Any recommended places?
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Drage13
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Re: Employer 401k no longer matching. What to do?

Post by Drage13 »

I've had not problems with Vanguard. They've always been great to work with.
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serbeer
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Re: Employer 401k no longer matching. What to do?

Post by serbeer »

My IRAs are in Ameritrade. They have great list of over 100 commission-free ETFs, many of them with very low ER that cover all of my needs (well, I wish VPL ticker was on the list too)--Vanguard index ETFs including. Excellent website (with ability to select flexible specific share identification policy on account level), great customer service, local offices in many ares that made it easy for me to drop off roll-over check from 401Ks that were too large to be comfortable for me to mail. Disclaimer: I've been using them for the past 15 years but have no association with them otherwise.

But if you want to invest into mutual funds instead of ETFs, you'd be better off with Vanguard or Fidelity (my 401Ks are in Fidelity, and it is fine too, though I like Ameritrade website better).
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YoungBoglehead
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Re: Employer 401k no longer matching. What to do?

Post by YoungBoglehead »

serbeer wrote:My IRAs are in Ameritrade. They have great list of over 100 commission-free ETFs, many of them with very low ER that cover all of my needs (well, I wish VPL ticker was on the list too)--Vanguard index ETFs including. Excellent website (with ability to select flexible specific share identification policy on account level), great customer service, local offices in many ares that made it easy for me to drop off roll-over check from 401Ks that were too large to be comfortable for me to mail. Disclaimer: I've been using them for the past 15 years but have no association with them otherwise.

But if you want to invest into mutual funds instead of ETFs, you'd be better off with Vanguard or Fidelity (my 401Ks are in Fidelity, and it is fine too, though I like Ameritrade website better).

Thanks for all your tips. The only reason I'd lean towards Vanguard is because I use them already and like them a lot.

As long as this is possible, I imagine I'd invest my IRA just like I do in my taxable accounts. Primarily a few ETFs like VTI, VXUS, and BND. Total US market, total INT'l market, and total bond market
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Chadnudj
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Re: Employer 401k no longer matching. What to do?

Post by Chadnudj »

YoungBoglehead wrote:I'm pretty sold on keeping more in retirement accounts after this thread. Especially the IRA/401k.

As to the very last post above ^ I plan on sometime soon making another thread in that format with all details in there asking for advice. Not quite yet, busy work week.
One other benefit to maxing out the retirement accounts? Because you can contribute those with PRE-TAX money, you'll arguably have more than you think to contribute to your after tax accounts.

In other words, if you're saving 40% of your income NOW (while paying probably 28% federal taxes plus any state taxes given your income on the 36% of your income that is NOT going towards your 401k), you could probably max out the 401k and an IRA and STILL approach (if not quite reach) saving 40% of your income overall, thanks to avoiding (at least for now) taxes.

Someone in your position (high income bracket) should almost ALWAYS max out retirement accounts first, simply because it leaves you with more money invested overall.
TSR
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Re: Employer 401k no longer matching. What to do?

Post by TSR »

The more I read here, the more I think that you of all people should be contributing to your 401k. What you've described above is a perfectly fine plan -- we could use more people who want to give to others -- but it suggests that you have trouble compartmentalizing your savings. You appear to be viewing the total as a big lump sum of money ALL of which you could use at any time. You're lumping together charitable givings, home down-payment savings, retirement, etc. Because of this, it sounds like you might actually benefit from having a fairly significant penalty if you start thinking about taking out money that ought to go toward retirement, and it sounds like having easy access to the money (as in the Roth contributions) might harm you in the long run. Please consider using separate accounts for all of the above expenses (and others) so that you can acheive all of those goals without commingling them in your mind. Best of luck, and we'll look forward to your post of your full situation.
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serbeer
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Re: Employer 401k no longer matching. What to do?

Post by serbeer »

YoungBoglehead wrote: Thanks for all your tips. The only reason I'd lean towards Vanguard is because I use them already and like them a lot.
Vanguard is a fine choice IMO (unless you have complicated matters that require significant customer service involvement--from what I heard--and I'll leave it at that since it is hearsay really).
cherijoh
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Re: Employer 401k no longer matching. What to do?

Post by cherijoh »

Don't forget that you can still make a traditional IRA or Roth IRA contribution for 2013 up until the April tax filing deadline. So you could do both 2013 and 2014 now and not lose the opportunity! It is too late to get back any of that excess space in your 401k for 2013.

C
retiredjg
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Re: Employer 401k no longer matching. What to do?

Post by retiredjg »

Since you expressed a desire for very low expense ratios, I'd suggest you use either Vanguard or Fidelity. Since you already have money at VG and like them, that's what I'd use.
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Re: Employer 401k no longer matching. What to do?

Post by montanagirl »

terrabiped wrote:The nice thing about a 401k is the automation. That money is taken out automatically from every check, before taxes, without you ever having to think about it, or change your mind. That happens month in and month out, year in and year out, regardless of what's going on in your life or the markets. This is one of the easiest ways to save and invest, or so it seem to me. I've always contributed as much as I could to my 401k.
Exactly. I never got a match in 19 years, and we had bad ER's, but I kept plugging away at that and an IRA on the side. I'm sure glad I have that now that I'm pondering a sooner than anticipated retirement at 65. It's just the fact that you never lay hands on it, which strangely enough gave me the discipline to also contribute to the IRA.
Billionaire
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Joined: Sat Jan 04, 2014 3:05 pm

Re: Employer 401k no longer matching. What to do?

Post by Billionaire »

Prior to 2013, my company had a 6% match. In 2013, they changed it to a 3% match, plus a profit sharing contribution based on profitability after year end. The profit sharing amount is approx. 3 to 4% of your annual salary, so I'm planning on coming out ahead. In order to qualify for the profit sharing, you must be on the payroll as of 12/31. Question to the OP, Is it possible they making a profit sharing contribution (and not stock options) instead of the match?
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Watty
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Joined: Wed Oct 10, 2007 3:55 pm

Re: Employer 401k no longer matching. What to do?

Post by Watty »

an_asker wrote:
Watty wrote:The Vanguard 2050 fund at Vanguard has an ER of 0.18% compared to your 0.26% for a difference of 0.08% .

If you have $10K in the account that would cost you an extra $0.80 a year. [...]
Just to fix the math --> 0.08/100 *10000 = $8.

Granted, it should not be a big deal for someone with a six-figure income. ;-)
Thanks for catching that.

That was a good example of why you want to verify everything yourself.
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