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. SaveBuyLive says

    My current employer is lame and doesn’t bother to offer a 401 match. Instead, we have a pension plan which is constructed in such a way as to benefit only the elite employees who have been with the organization for decades.

    My employer’s lameness aside I still make use of the 401. Why? Two reasons. One, it’s a good way to save for retirement. And I’ve maxed my IRA so the 401 is the next best option.

    Two, it establishes a pattern of saving in my life. I could put it off, always waiting for the perfect retirement plan before I start saving, but the transition will be harder to make later in my career when there are more demands on my income. If I get used to living on less money and regularly dumping large sums into my retirement account, it will become a habit and will be second nature by the time I hit mid and late career.

    • Ryan says

      SaveBuyLive: You can’t underestimate the benefits of getting into the habit of saving an investing. It’s so easy to forget about it if you don’t set it on autopilot.

  2. My Journey says

    Just wrote a post on other less obvious 401(k) benefits and you hit them all except two:
    1) IRAs don’t allow for Loans
    2) 401(k) Hardship withdrawals are more defined by the IRS

    Neither great topics, but when an emergency hits you’ll be happy with your 401(k)

  3. Craig says

    Currently without either option there I am working on researching a Vanguard Roth IRA to open up and contribute to.

  4. Doctor S says

    It is a no-brainer if you ask me. Either way you are saving some sort of your income and lowering your taxable income if you are contributing pre-tax dollars. If your employer has a matching program then it is an even bigger no brainer!

    @Craig Vanguard is a great option…. I highly reccommend it! LOL.

  5. MLR says

    My employer only matches 50 cents on the dollar up to a 4% contribution. I used to put in 8%. With the current economic climate I bumped it up to 11%, why not? I also max my Roth IRA.

    Like SBL said, the main thing is creating a habit of saving. That money isn’t mine, its my future selfs.

    • Ryan says

      MLR: Excellent job! My 401k plan isn’t great – it is currently .5% match up to 3%, for a total of 1.5% match. I max out my IRA as well. I know that in the long run it is a great idea!

  6. El Cheapo says

    My current employer has never offered matching, but I still contribute up to the max. For me, it’s almost piece of mind knowing that I’m putting money away for my future. Before it can reach my checking account, it goes straight to my 401K. I try not to check my 401K balance as well (especially now that everything has tanked). Anyways, my advice is contribute if you can and if you can’t, save as much as you can and contribute when things looks better.

  7. Kristen says

    My employer doesn’t match contributions to our 403b (the non-profit version of a 401k). I am investing in a Roth IRA instead. After I pay off the remainder of my credit card debt (hopefully within the next 10 to 12 months) I plan to also start investing in long-term life insurance.

    • Ryan says

      Kristen: I would probably do the Roth IRA in your situation as well. I would definitely research life insurance before buying a policy as an investment. Some of them are full of fees and restrictions.

  8. SavingDiva says

    As a grad student, I could contribute to a 401k (they call it super saver or something), but there will be no matching. If I am able to contribute, I think a Roth IRA would be beneficial because my income is so low and I’m only going to be in graduate school for a few years.

  9. Slinky says

    I just had to make this decision. I’m diverting that money over into my Roth IRA. I’ve just graduated, so it’s unlikely I’ll ever pay less in taxes than right now. I also get better investment selections.

  10. drummer says

    I currently have non company matched 401k, problem is we only work have the
    year Aug-Jan…should I stop putting money in until the company starts matching again?

  11. Grant says

    Why dodge taxes at todays tax bracket if taxes are only going to be higher in the future? The 401(k) is a retirement plan for Uncle Sam, not you. Lets face it, the taxes that you’ll pay when you start withdrawing funds will reimburse Uncle Sam in the first 3-5 years of what he should have received and every dime after is his profit. You think taxes are going to be lower in the future with the Nat’l Debt quadrupling in the last 10 years? Former Comptroller of the US, David Walker, said “We’ll have to reduce federal spending by 50% or increase taxes by 60% just to stay afloat” (not verbatim, but you get the drift). Shooting for a lower tax bracket in retirement? Good luck. No mortgage deduction if your house is paid for, no dependents because they all moved out and now you are left with yourself and your 401K to live on. Have fun, I see it all the time. A roth is a step in the right direction, but still too many restrictions. Do some research and you’ll find the vehicle thats right for your goals, not Obamas.

    • Ryan says

      Grant, you bring up a good point about future taxes. And unfortunately, you’re probably right – taxes will most likely increase. But a 401k plan can still benefit people today, especially those who are looking for current tax breaks, are near retirement, or those for whom this form of investing is the only tax deferred plan they qualify for.

      • Grant says

        You are correct Ryan in that for some people, this may the only option they have this close to retirement. But the reality is, mainstream wisdom is telling the public to “stash their 401k as much as possible” is far too broad of a statement and it’s leading about 95% of people down the wrong road. Take Suze Orman for instance with her wide range of viewers from every end of the spectrum telling all of them that the IRA, Roth IRA and 401(k) are the best options. However, in an interview (that’s out there somewhere but I can’t recite the source), she only had 2-5% of her money in the market when it tanked in 08….because it was “too risky”. Diversification is great but even if you were 100% in bonds at the market downturn, you still lost a lot of money and for those close to retirement, that risk- if at all possible, should be avoided entirely with their core holdings. Sure, if all of the ducks are lined up in the right order, a 401k or some market exposure is warranted but my point is that 99.9% of people rely on this market to get them to their retirement goals and this should be the last place they place their money, not the first (like most do). Know what I mean? =)

        • Liz says

          Grant, I completely agreed!

          I think saving for retirement is a great idea and everyone should get into the habit of it. However, what most don’t understand is they’re still playing in the stock market. The key word is “playing” and worse yet, most give money to others to play for them without understanding the rules of the game.

          When people talk about 401k, roth ira, and ira it is always associated with “savings” for retirement. The words savings usually means saving accounts, interest earnings, CDs, Money Market Account. Things that doesn’t decline numerically (but could decline because of inflation). 401k, roth ira, and ira are not savings accounts, they are simply investment account that you could diversify towards savings (bonds, cash), or gambling for a chance to win big (stocks). Funds are put together by fund manager with a combination of both the savings and gambling components (stocks). I like to call them dealers, meaning either way they’ll win. However unlike a game of poker where you’ll know the max number of cards and max number of players, so it is possible to calculate the probability of winning. The stock market allows for too many moving variables that make predictions unpredictable. Blindly purchasing stocks by yourself or from money managers is like investing in a business that you have no idea who runs it and what it does. If you’re ok with that then you should consider investing in my unknown business, atleast I won’t charge you commission or fee, and I could guarantee that you’ll make money when the business is actually doing well and not what the speculator think. And your chance of losing it all is only if the business fails and again not what the speculators think.

  12. Daddy Paul says

    “Just because you no longer receive free money doesn’t mean you should use that as an excuse to stop investing.”
    Great point. Too many people will say I will put the money in an IRA. Six months later no money has been put in the IRA.

  13. SanDee says

    I find myself interested in investing for my future but had problems beginning it in the past because of never understanding the best options for me. This is one of the situations I have found myself in where I am given the information and told to CHOOSE but am afraid of making the wrong decision so I make NONE. My mother didn’t make it to retirement age and I find myself wondering “WHAT’S THE POINT?”!

  14. Steve says

    There is way to much information for the normal person here. Bottom line is, it doesn’t matter if you save in a 401K for the future or save without 401K for the future. It’s to save. The argument about value of a dollar in the future does not hold water in that if you save without the 401K it’s still the same dollar in the future. I do it because I can’t get to it. I know people that save outside of the 401K and they live paycheck to paycheck because they spend it. They get some money in the bank and then poof, they realize they have money in the bank and then they figure to take a vacation. If it’s not in my bank, I can’t spend it. For young people a Roth 401K would be the best options since it’s the same rules except the money is taxed on the front and tax free on the back. That doesn’t mean it will stay that way. I’ve been in a IRA / 401K since I started working 30+ years ago. I can retire without Social Security and most of my friends that are the same age didn’t and they don’t have nearly enough to retire. Bottom line for me is, the government isn’t going to help me retire. I can take out the same I’m making now and pay the same taxes. Based on analysis, I’ve got 5 times the money I’ve put into my retirement and it didn’t cost me what I put in. If the market craters to nothing, we are all in trouble. Doesn’t matter if your invested or not. I’d rather have something to lose if the market craters, then nothing to gain if it doesn’t.

  15. 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.

  16. 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.

  17. 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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