Are 401(k)s Without Matching Contributions Worth It?

by NerdWallet | September 27, 2013 1:00 pm

Since 401(k)s were introduced in 1980, employer matching programs have been an important incentive for workers to fund their retirement accounts. However, no company is required to provide a match, and for financial reasons, many choose not to… 42% of U.S. companies[1] do not offer an employer match.

While 401(k)s are an obvious first choice for any retirement savings if your employer matches contributions, what if they don’t? Are 401(k)s still a good option?

401(k)s vs. IRAs

Even if your employer doesn’t offer a 401(k) match, you still need to save for retirement[2]. If anything, you need to save more. But should you use a 401(k)? An IRA? Both?

When deciding (or prioritizing) between IRAs and 401(k)s, there are a few aspects you’ll definitely want to consider: contribution limits, the diversity of funds available and whether the money is deducted from your paycheck pre- or post-tax. IRAs also have eligibility[3] requirements that may make your choice obvious.

Screen Shot 2013 09 26 at 10.46.37 AM Are 401(k)s Without Matching Contributions Worth It?

Be Flexible

Because of the rules[4] governing 401(k)s and IRAs, and your changing financial situation, your best approach for retirement saving should change over time. For example: 

Note: If you’re 50 or over and you (or you and your spouse) are still eligible to contribute to an IRA, your annual limit increases – to $6,500 in 2013.

If You Have to Pick

Because each financial situation is so specific, you should consult a financial advisor before choosing between a 401(k) and an IRA, if you must. But in general:

Most importantly, choose whatever option – or combination of options – lets you maximize your retirement savings, and adjust as your salary and circumstances change.

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Endnotes:
  1. U.S. companies: http://www.thestreet.com/story/11911313/1/more-us-firms-shutter-401ks-matching-programs.html
  2. retirement: http://www.nerdwallet.com/blog/investing/2013/hidden-401k-fees-plan-retirement-account-study/
  3. eligibility: http://www.nerdwallet.com/blog/investing/2013/high-income-roth-ira-backdoor/
  4. rules: http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1
  5. 401(k) Rollovers: How to roll over a 401(k) to a No Fee IRA: http://www.nerdwallet.com/blog/investing/2013/401k-rollovers-roll-401k-no-fee-ira/

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