Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

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PYITEJones
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Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:10 pm

Good afternoon, Bogleheads. My company's new owner has unveiled its 401k option with the following funds. Kicker: the employer will not contribute or match contributions to the 401k. From everything I can gather, this stance won't change any time in the near future, if ever. I have an IRA (roughly $3,800 in Money Market Fund but deciding how to invest) and Roth IRA (roughly $90,000 in Admiral Index 500).

I just started Boglehead's Guide to Retirement Planning but wanted a gut check. Am I better off just contributing to my IRA and Roth IRA?

Stock Investments Large Cap
FA EQUITY INCOME A
FA NEW INSIGHTS I
INVS EQL WT S&P500 A
INVS GRTH & INC A
INVS S&P 500 INDEX Y
OPPHMR MAIN STREET A
OPPHMR MS SELECT A

Mid-Cap
COL MID CAP INDEX R5
FA LEV CO STOCK A
FA MID CAP II A
FA VALUE FUND A
FED MID CAP INDEX SS

Small Cap
FA SMALL CAP A
NB GENESIS - ADV CL

International
AB INTL GRTH A
FA DIVERS INTL A
OPPENHEIMER GLOBAL A
THORNBURG INT VAL R4

Blended Investments Others
FA ASSET MGR 70% A
FA FREEDOM 2005 I
FA FREEDOM 2010 I
FA FREEDOM 2015 I
FA FREEDOM 2020 I
FA FREEDOM 2025 I
FA FREEDOM 2030 I
FA FREEDOM 2035 I
FA FREEDOM 2040 I
FA FREEDOM 2045 I
FA FREEDOM 2050 I
FA FREEDOM 2055 I
FA FREEDOM 2060 I
FA FREEDOM INC I
INVS EQUITY & INC A

Bond Investments
Stable Value

FA STABLE VALUE
FA HIGH INC ADV A
FA INVST GRD BOND A
FA STRAT INCOME A

Income
FA HIGH INC ADV A
FA INVST GRD BOND A
FA STRAT INCOME A

livesoft
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by livesoft » Mon Jun 12, 2017 4:12 pm

How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
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PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:16 pm

livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
By fantastic, do you mean if the funds were excellent (low cost/high return)? Probably $6,000-7,200. Ideally.

MrNewEngland
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by MrNewEngland » Mon Jun 12, 2017 4:17 pm

livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I was going to ask the same question. If you're only going to invest $5,500 or less annually then just fund an IRA. If you can afford more than that I'd say to go with the 401K after the IRA is maxed out.

PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:17 pm

livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I'm sorry, I misunderstood you. If the 401k was incredible, I would still max out the Roth IRA at least. I'm 36, so $5,500.

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flamesabers
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by flamesabers » Mon Jun 12, 2017 4:19 pm

What are the expense ratios? (Or at least what is the fund with the lowest expense ratio in your plan?)

How long are you planning on working for your employer?

When you have a bad plan, it's understandable why one would prefer an IRA over the 401k. Nevertheless, you're still foregoing the tax-advantaged space of the 401k. Even without a match, it can still be worthwhile to contribute to a 401k, if only to make use of this tax-advantaged space.
PYITEJones wrote:
livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I'm sorry, I misunderstood you. If the 401k was incredible, I would still max out the Roth IRA at least. I'm 36, so $5,500.
Does this mean you're not going to contribute to your 401k after you max out your Roth IRA? There's nothing wrong with prioritizing a Roth IRA over a 401k (without an employer match), but not contributing to the 401k at all is another matter entirely I think.
Last edited by flamesabers on Mon Jun 12, 2017 4:20 pm, edited 1 time in total.

livesoft
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by livesoft » Mon Jun 12, 2017 4:19 pm

PYITEJones wrote:
livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I'm sorry, I misunderstood you. If the 401k was incredible, I would still max out the Roth IRA at least. I'm 36, so $5,500.
So if the 401(k) was incredible, then you would not contribute to it and would only contribute to a Roth IRA?

Or would you contribute $5,500 to a Roth IRA and $7,200 to the 401(k) too, for a total of $12,700?

And you know that if you contribute $5,500 to your Roth IRA, then you cannot contribute anything to a traditional IRA because the $5,500 is the combined limit.

Got a spouse?
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PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:30 pm

livesoft wrote:
PYITEJones wrote:
livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I'm sorry, I misunderstood you. If the 401k was incredible, I would still max out the Roth IRA at least. I'm 36, so $5,500.
So if the 401(k) was incredible, then you would not contribute to it and would only contribute to a Roth IRA?

Or would you contribute $5,500 to a Roth IRA and $7,200 to the 401(k) too, for a total of $12,700?

And you know that if you contribute $5,500 to your Roth IRA, then you cannot contribute anything to a traditional IRA because the $5,500 is the combined limit.

Got a spouse?
Yes, I have a wife. She's enrolled in her employer's plan, which includes a match up to 3 percent.

Rethinking that original message about how much I would contribute to the 401k. If I'm doing both, then it would be more like $4,800 to the 401K.

PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:32 pm

flamesabers wrote:What are the expense ratios? (Or at least what is the fund with the lowest expense ratio in your plan?)

How long are you planning on working for your employer?

When you have a bad plan, it's understandable why one would prefer an IRA over the 401k. Nevertheless, you're still foregoing the tax-advantaged space of the 401k. Even without a match, it can still be worthwhile to contribute to a 401k, if only to make use of this tax-advantaged space.
PYITEJones wrote:
livesoft wrote:How much would you contribute annually to a 401(k) and a Roth IRA if the 401(k) was fantastic?
I'm sorry, I misunderstood you. If the 401k was incredible, I would still max out the Roth IRA at least. I'm 36, so $5,500.
Does this mean you're not going to contribute to your 401k after you max out your Roth IRA? There's nothing wrong with prioritizing a Roth IRA over a 401k (without an employer match), but not contributing to the 401k at all is another matter entirely I think.
Best fund is COL MID-CAP INDEX with an expense ratio of 0.26 percent. I plan on working for the employer as long as they'll keep me around. Honestly, I like it here.

EDITED TO ADD: And considering I have everything in Admiral Index 500 (Large cap) a Mid-Cap could be good diversification, no?

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flamesabers
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by flamesabers » Mon Jun 12, 2017 4:37 pm

PYITEJones wrote:Best fund is COL MID-CAP INDEX with an expense ratio of 0.26 percent. I plan on working for the employer as long as they'll keep me around. Honestly, I like it here.

EDITED TO ADD: And considering I have everything in Admiral Index 500 (Large cap) a Mid-Cap could be good diversification, no?
An ER of 0.26% isn't ideal, but it isn't horrendous either. Do you know how much your plan is charging for admin fees and the like?

As far as where to invest the 401k, do you have any other investments besides the Roth IRA and money market account? Also, what is your desired asset allocation?

PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 4:54 pm

flamesabers wrote:
PYITEJones wrote:Best fund is COL MID-CAP INDEX with an expense ratio of 0.26 percent. I plan on working for the employer as long as they'll keep me around. Honestly, I like it here.

EDITED TO ADD: And considering I have everything in Admiral Index 500 (Large cap) a Mid-Cap could be good diversification, no?
An ER of 0.26% isn't ideal, but it isn't horrendous either. Do you know how much your plan is charging for admin fees and the like?

As far as where to invest the 401k, do you have any other investments besides the Roth IRA and money market account? Also, what is your desired asset allocation?
I do not know the administrative fees. The plan is managed by Fidelity, which I found somewhat assuring. All of my other investments are in Vanguard. The only other investment I have is with American Century in the Ultra Fund, which is currently around $6,000.

Here is a snapshot of my investment situation posted a few months ago. viewtopic.php?f=1&t=218839&p=3367081#p3367081. Note that the tax rates are incorrect.

retiredjg
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by retiredjg » Mon Jun 12, 2017 5:20 pm

Pyite, this is the kind of question that cannot be reliably answered with incomplete information. We don't know how much money you and wife together intend to save in a year. We don't know your tax bracket. We don't know who has the better 401k plan. Etc. So any answers you get may be based on assumptions that do not apply to you.

I know that format we ask you to follow can be a bear. You attempted it once and it was incomplete and you said you'd add information....but you didn't...so you never got some definitive answers. Now you are trying again. I'm sure you thought the question and answer would be simple, but it isn't. What is good for a low income earner may not be what is best for a high income earner. What is good for someone saving $5k is different from what is good for someone saving $30k.

In general, here is an answer.

Figure out how much money the two of you can save. First, get the match in Her 401k. Then contribute to whichever 401k is better in terms of low cost options. If you are in a low tax bracket, be sure you get some Roth IRA as well. If there is more money to be saved, fill the other 401k too. If there is more money after that, fill the other Roth IRA too.

I think you might think that a 401k is only good to use if you get a match. That is not correct. Deferring taxes, in a 401k and/or traditional IRA, is beneficial to many people in the long run even with no match. However, many people make too much money to defer taxes in a traditional IRA, so using traditional 401k (where you can defer the taxes) is the better option.

Sorry to be so negative, but what you really need to do is pull all the information together in one place. That will help you tremendously in "seeing" how things work. And it will help people help you. So if you are not getting an answer you can use, you really need to do that. :happy

PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 5:30 pm

retiredjg wrote:Sorry to be so negative, but what you really need to do is pull all the information together in one place. That will help you tremendously in "seeing" how things work. And it will help people help you. So if you are not getting an answer you can use, you really need to do that. :happy
You're not being negative at all. Not one bit. In fact, you're going above and beyond and I appreciate the help. I've got a million spinning plates at the moment and should have finished that template out. But this is one that needs my focus.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by oldcomputerguy » Mon Jun 12, 2017 5:30 pm

Does your 401k plan waive the load fees? The prospectus for both of the Oppenheimer funds state that these funds are horribly expensive (1-1.5% ER) and both have a 5.75% load.

Frankly, if these choices were presented to me, and I knew that there would be no match, the only reason I would even consider contributing to this plan at all is if I had extra investable money after maxing out my Roth (since the limit on employee contributions to a 401k plan is $18k per year versus $5500 for an IRA, you can invest more).
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by retiredjg » Mon Jun 12, 2017 5:57 pm

PYITEJones wrote: But this is one that needs my focus.
Well here is an answer that is good enough. Fill Roth IRA and put whatever else you can save into the 401k. Or put it all into the 401k. Or split it half and half or 2/3 and 1/3.

It is possible that none of those are the best answer, but none are bad answers. The important thing is to save money.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by macheta » Mon Jun 12, 2017 6:00 pm

I would still try to figure out the administrative fees. This is one of the most important parts to making a decision about investing.

Assuming the 401k has low fees, it can also protect your savings from being taken away from a lawsuit. Another major plus is that the funds are taken out directly from your paycheck. I assume you can setup to do the same on an IRA. This allows you to save more and have to do less manual transaction.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by Helo80 » Mon Jun 12, 2017 6:07 pm

Try to find the admin fees and ER for the various funds offered. While it sucks that your employer won't match anything, a decent amount of employers (small businesses) have no 401k's to begin with.

So, if the fees for like a Vanguard S&P 500 Index aren't that much higher than the 0.04% norm, treat your 401k like an extended IRA. I would not forego 401k contributions (unless fees are absurd and they may very well be) to spite the employer or from a feeling that it's useless to contribute.

livesoft
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by livesoft » Mon Jun 12, 2017 6:21 pm

PYITEJones wrote:Yes, I have a wife. She's enrolled in her employer's plan, which includes a match up to 3 percent.

Rethinking that original message about how much I would contribute to the 401k. If I'm doing both, then it would be more like $4,800 to the 401K.
So I give up. Without knowing something about your spouse's plan, who can say? It could be that you all should put $18,000 into her plan and $5,500 in both of your Roth IRAs, then any leftover into your 401(k), but who knows?
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PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 9:54 pm

livesoft wrote:
PYITEJones wrote:Yes, I have a wife. She's enrolled in her employer's plan, which includes a match up to 3 percent.

Rethinking that original message about how much I would contribute to the 401k. If I'm doing both, then it would be more like $4,800 to the 401K.
So I give up. Without knowing something about your spouse's plan, who can say? It could be that you all should put $18,000 into her plan and $5,500 in both of your Roth IRAs, then any leftover into your 401(k), but who knows?
Haha, I'm sorry, livesoft. If our paths ever cross, I will buy you one (1) soft drink of your choice or something with a little more bite if that's to your liking. I don't have her information readily available but am trying to pull that together. Y'all are opening my eyes to the importance of looking at the whole picture. I appreciate your patience and insight. Truly, this is valuable to me.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by TIAX » Mon Jun 12, 2017 10:35 pm

How hard is it to provide your marginal tax rate (state and federal) and options for your wife and your 401(k) including expense ratios? You won't get any useful responses otherwise.

PYITEJones
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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by PYITEJones » Mon Jun 12, 2017 11:09 pm

TIAX wrote:How hard is it to provide your marginal tax rate (state and federal) and options for your wife and your 401(k) including expense ratios? You won't get any useful responses otherwise.
15 percent federal, 6 percent state (Georgia). My wife is currently out of town so I don't have easy access to her paper documents.

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Re: Employer is not contributing to 401k — better to just contribute to my own IRA and Roth?

Post by retiredjg » Tue Jun 13, 2017 6:16 am

PYITEJones wrote: Y'all are opening my eyes to the importance of looking at the whole picture.
Ahhhh!!! :happy

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