Published October 16, 2013
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 US companies 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. 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 requirements that may make your choice obvious.
Because of the rules 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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