My 401(k) Doesn't Have a Match. Is It Still Worth It?

A 401(k) match can ease the burden of saving for retirement on your own, but not all employers can afford to offer this. If yours doesn't, you may be wondering if it's still worth making contributions. Or are you better off saving for retirement on your own with an IRA?

The answer depends on your plan itself, specifically its investment products and its fees. Read on to learn more about those factors below.

Access to investment products

A 401(k) usually limits you to a few investment products that your employer has preselected. This isn't an issue if you like what's offered, but if you don't, there's not much you can do. You can try persuading your employer to introduce new investment choices or to offer a brokerage account option, which gives you the freedom to choose how you want to invest your savings, but it doesn't have to comply. If that doesn't work and you're not getting an employer 401(k) match, an IRA may suit you better.

IRAs offer virtually unlimited investment options. You can choose from individual stocks and bonds, funds made up of many stocks and bonds like mutual funds and exchange-traded funds (ETFs), annuities, and even real estate. You have complete freedom to invest your money how you see fit and to make changes to your portfolio as often as necessary.


One of the biggest downsides to limited investment choices in a 401(k) is that you could end up with high expense ratios that eat into your profits. An expense ratio is an annual fee that mutual funds charge shareholders to cover the operating costs of the fund. In addition, 401(k)s have administrative fees that cover the costs of recordkeeping and providing services like IRA rollovers.

As a general rule, you shouldn't pay more than 1% of your account balance in fees each year, especially if you're not getting an employer match to help cover these costs. This usually isn't a problem among larger companies because they can spread out the administrative fees among a larger group of people. But in smaller companies, there are fewer people to shoulder the costs.

You can determine how much you're paying in 401(k) fees by checking your plan summary or looking at the prospectus for your investments. Ask your HR department or your plan administrator if you run into any questions. You can't do anything about the administrative costs, but you may be able to convince your employer to add some low-cost investment options, like index funds -- low-cost mutual funds that track a market index -- if the expense ratios are too high on your existing investment products.

Going it alone

If your employer's 401(k) plan charges high fees, offers poor investment choices, and doesn't match your contributions, open an IRA instead. You can choose either traditional or Roth, depending on whether you want to pay taxes now or later. A traditional IRA is best if you believe you're in a higher income tax bracket now than you will be in retirement. A Roth IRA is better if you think you'll be in a higher tax bracket in retirement. You can also have one of each type and contribute some to both.

If you've already contributed to your 401(k), you can roll over those funds to your new IRA once it's set up. Talk to your plan administrator about doing a direct rollover to your new IRA. This means the money will be sent directly from your 401(k) to your IRA, so there's no risk that you'll be taxed for a distribution.

One of the limitations of IRAs is that you can only contribute up to $6,000 in 2019, or $7,000 if you're 50 or older, whereas you can contribute up to $19,000 to a 401(k) in 2019, or $25,000 if you're 50 or older. This limit applies to all of your IRAs, not to each one individually. So you can't contribute $6,000 to a traditional IRA and $6,000 to a Roth IRA. If this ceiling is too low for you, consider maxing out your IRA first and then put any extra savings in your 401(k) to take advantage of the tax-deferred growth.

Don't just assume your 401(k) is your best option just because it's there. Delve into the details of the plan and decide whether the returns you're getting are worth the fees you're paying. If not, you may be better off saving for retirement on your own.

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