One big benefit of 401(k)s is that many come with a company match.
If yours doesn’t, you may be wondering if it pays to participate.
Consider your investment choices, fees, and ease of contributions when making your decision.
One of the biggest perks of having access to a 401(k) plan is scoring free money in the form of an employer match. Even small matching policies can go a long way toward helping people build retirement savings.
If your workplace 401(k) plan doesn’t offer a match, though, then you may be wondering if it pays to contribute to that account versus find another home for your savings. The answer? It depends on what your 401(k) can do for you.
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Even though losing out on a company match is a huge blow, there are other benefits to saving for retirement in a 401(k). First, you get a tax break on your contributions with a traditional 401(k), and your money gets to grow tax-free.
Also, 401(k)s make contributions easy. You decide on an amount you want deducted from your paychecks and your payroll department takes care of the rest. Those automatic contributions could be your ticket to staying on track with retirement savings.
While 401(k)s are easy to fund and come with higher contribution limits than IRAs, an IRA may be a better choice if your 401(k) doesn’t come with a match.
For one thing, IRAs tend to offer a much wider range of investment choices. You can buy individual stocks, for example, which you typically can’t do in a 401(k).
Also, because you get more investment options, you may be able to keep your fees lower in an IRA. And the less money you lose to fees, the more you get to keep.
It generally pays to fund a 401(k) up to your workplace match at the very least. But if you have no match, you shouldn’t feel pressured to participate in your company’s 401(k).
If you’re not sure whether you should or not, ask these questions:
Running through these questions should help you decide if that 401(k) is worth participating in. And remember, just because your employer doesn’t offer a match today doesn’t mean that benefit won’t ever be on the table. So if you opt out of that plan this year, revisit the situation next year in case your company has a change of heart.
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