Should You Contribute to a 401k Without an Employer Match?

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should you contribute to a 401k without an employer match
The economic crisis has affected many companies here in the US, and as a result, many companies are slashing their 401(k) match and other benefits to conserve cash. The bad news is employees are losing out on free money. You should reexamine your situation any time your benefits change. You’ve probably heard that not contributing…

The economic crisis has affected many companies here in the US, and as a result, many companies are slashing their 401(k) match and other benefits to conserve cash.

The bad news is employees are losing out on free money.

You should reexamine your situation any time your benefits change.

You’ve probably heard that not contributing to a company-matched 401(k) is like leaving free money on the table. If your employer is matching your contributions, it’s a no brainer to max out that 401(k), but what if you aren’t getting matched?

Is it still worth contributing to that 401(k) or should you use a different account?

Your retirement is one of the most important things that you can plan for. This article is going to look at some of the various factors of a 401(k) employer match and what you should do if your employer doesn’t match your contributions.

What is a 401(k) Employer Match?

401(k) accounts were introduced back in 1980, and employer matching programs have become very common incentives for employees.

The idea of employer matching programs is simple: they will contribute one dollar for every dollar you put into the account, up to a certain amount.

Every company is different, and all of them are going to offer a different matching amount, and matching limit, on how much they will contribute every month. These employer matching incentives are one of the best ways to boost your retirement account and help you reach your retirement dreams.

Every year, I see a lot of people asking the same question, “what is a good 401(k) match percentage?” but the answer isn’t as simple.

The amount the company matches is going to vary drastically depending on the company. Some companies don’t offer any matching at all, while others are going to match 50 cents for every dollar that you put in.

According to some surveys, the majority of companies have some type of matching program and will contribute up to an average of 2.7% of an employee’s salary.

There are some companies that are going to continue to match contributions to up to 6% of the annual salary.

It’s difficult to say what a “good” match is. Anything is better than nothing, but anything that gets close to the average is good.

Pro Tip: Having a retirement plan is great, but getting the most out of your retirement is even better. Tools, like Blooom, help manage 401(k)’s to ensure investors are getting the most bang for their buck.

Should You Contribute to a 401k Without an Employer Match?

In most cases, it is still a good idea to contribute to a 401(k) plan, even without an employer match. Here are a few benefits to continuing your 401(k) contributions:

Automatic and guaranteed savings

401(k) contributions are made automatically with each paycheck – you never have to worry about transferring money, writing a check, mailing a letter, etc. Automation guarantees you will make your investment on time.

Lower taxable income

Contributions to a Traditional 401(k) plan lower your taxable income because the contributions are invested with money that has not yet been taxed. This leads to the next benefit:

Tax-deferred growth

Investing in a Traditional 401(k) plan means your contributions will grow without the drag of taxes until you make your withdrawals. Your money gets taxed when you withdraw it, and possibly at a lower tax rate if your tax bracket is lower in retirement than it is now.

Other Considerations

It is usually a good option to continue contributing to a 401k without an employer match, but there are some other factors you need to keep in mind.

Expenses and fees

Many 401(k) plans have higher fees than you will find for comparable funds outside of the 401(k) plan. You may find it less expensive to invest on your own than through your 401(k) plan. If that is the case, look into investing in an IRA so you can continue investing in a tax-advantaged retirement plan.

Investing in a 401(k) or IRA

You may decide to invest in an IRA instead of a 401(k) if you are eligible. Here are some differences between Roth and Traditional IRAs. You can open an IRA at almost any financial institution and you can find very inexpensive options at places such as Vanguard, Fidelity, T. Rowe Price, etc.

Retirement contributions and income limits

You will need to pay attention to the 401(k) contribution limits and Roth and Traditional IRA contribution limits. Be sure to note the associated income limitations of each. For example, if you are eligible for an employer-sponsored retirement plan, deductible IRA contributions begin to phase out for single filers at an AGI of $55,000, and at $89,000 for married filers. If those income limits affect you, then you may wish to invest in a Roth IRA or a non-deductible Traditional IRA.

Continue Investing

Just because you no longer receive free money doesn’t mean you should use that as an excuse to stop investing.

Retirement investing is an important part of financial planning and you should continue investing even without a company match. The free money may be gone, but the tax advantages remain.

The sad truth is that the vast majority of American workers don’t have nearly enough money saved to have the retirement that they want. If you aren’t on track to reach your retirement goals, don’t panic.

Maximizing your 401(k) is just one of the many of steps that you can take.

Unless you want to work until the day that you die, it’s important that you start investing your money as soon as possible.

The bottom line is, if your employer offers any type of matching program, then you should always take full advantage of that program. If you no longer have any matching, don’t worry, you should still max out your 401(k). You can then use other accounts to supplement that account.

Alternatives to a 401(k)

Many people who invest in 401(k) accounts further expand their portfolios through alternative investment means. Below are a couple of great options for those looking to diversify their portfolios.

Invest in a Roth IRA

The Roth IRA has quickly become a beloved investment vehicle for millions. The main reason for this is due to the fact that the money you invest in a Roth IRA account has already been taxed. On most investments, investors pay taxes on the monies when they withdraw them in retirement.

For many, this translates to paying higher taxes when they withdraw the funds because they are earning more at that time in life than they were when they originally invested the money. Eliminating this tax burden translates to more money for retirees.

Ally Invest is a popular option for those looking to invest in a Roth IRA.

Learn More About Ally Invest

To learn more about this investment method, check out my Roth IRA Guide.

Invest in Real Estate

Returns in the real estate market can massive. However, the risk and cost to invest in this market have disenfranchised numerous investors from engaging in this space.

Several companies, such as Fundrise, have emerged over the past few years that have given individual investors who previously were not able to take advantage of this market to invest in commercial real estate developments through Real Estate Investment Trusts (REITs).

Fundrise allows individual investors to pool together their money to collectively invest in commercial real estate. This eliminates the need for a large sum of cash and spreads out the risk. It’s no wonder Fundrise has grown to over half-a-million members.

Learn More About Fundrise

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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Thomas says

    Can my employer create a 401k without my knowledge?
    Can my employer fund my 401k without my knowledge?
    I learned of this after I left the company. The investment house that ran the 401k notified me that I had money that was part of “my 401k.” I had always declined being involved with this company 401k plan given its punitive nature regarding fees. And no, this wasn’t a mistake, the company had been funding “my 401k” for several years. And yes, I did collect the money and deposited into my IRA.
    Any Ideas?

    • Ryan Guina says

      Hello Thomas, it may be possible if they have an automatic company match in which the company automatically contributes a percentage of your pay as part of your benefits. If this is the case, then it’s simply part of your benefits, and you came out ahead. But the only way to know is to contact the company’s HR department and ask.

  2. Toland says

    My company offers a simple ira. They are supposed to match, just found out they have been taking my contribution out from my check 2 times a month but never deposited it in to my retirement account. My w-2 always shows what they take out and what they match but that is false. What should I do? I have spoke to them but they are very hit and miss on how they respond to me.

    • Ryan Guina says

      Toland, this is a big issue, and I urge you not to let it slide. This could be as simple as an administrative mistake, or it could be a sign of something more serious. I would speak with your company Human Resources officer and make a formal inquiry regarding the matter. If this is not resolved, then you should speak with a lawyer who specializes in workplace matters. Best wishes.

  3. Dee says

    I was recently laid off and now I’m being told that I must move my 401k money to another account or Fidelity will send me a check for the whole amount. If I don’t move it to another plan, I’ll have to pay 30% tax. I want to place it in another 401k account. I do have a contract job starting on 12/3/18, but they don’t offer a 401k account. I would be greatful for some advice as to where to put the money. I don’t won’t to go with an IRA account.

    • Ryan Guina says

      Hello Dee, if you can’t keep your money in your previous 401k plan, then you will need to roll it into another qualified retirement plan. This could be another 401k plan, an IRA, a 403b, or a similar account. If you don’t move the funds into another retirement plan, your provider, in this case, Fidelity, will be required to send you a check for the balance. This is a taxable event and may also require you to pay an early withdrawal penalty if you are under the age of 59 1/2.

      In your situation, it may be best to transfer the funds into an IRA. You can do this through many different companies, including Fidelity. If you have further questions, I would speak with a fee-only financial planner or a tax professional. Either one should be able to give you some solid recommendations on how to proceed without having to pay a lot of taxes or penalties. Best wishes!

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