Many people believe that a employer sponsored 401(k) account is the best option available to them for saving for retirement. After all, it is easy to set up a direct deposit into the account and there are often matching funds available from the employer administering the plan. However, there are some cases where a 401(k) account is not the best option for stashing your retirement savings. Here are some signs that your employer sponsored 401(k) plan may not be the most effective retirement savings option.
No Matching Contributions
Although many employers offer their employees matching funds for contributing to their 401(k) account, there are some employers that do not. Not having matching contributions for the account can make your company’s 401(k) plans much less attractive. Even though you will still be able to save automatically and will reduce your tax liability, there are some other tax free retirement saving accounts that may have higher interest rates and less fees associated with them. If your employer does not offer matching funds and participation in the 401(k) program is not mandatory, it may be better for you to put your retirement savings into a different account.
You Do Not Plan To Stay
There are some cases where a person gets accepted for a new job only to find out that the job is not what they expected or they do not like the individuals that they have to work with. If you believe that you will not be with the company for very long, there is little reason to begin contributing to the company’s 410(k) plan. To receive the employer’s matching funds for the account, you typically must stay employed with the company for a number of years, typically between 3 and 5 years. If you do not plan on staying for that long, contributing to the company’s 401(k) plan may not make much sense.
The Plan Is Expensive
Another indication that contributing to your employer’s 401(k) plan may not be the best option for you is when the plan has unreasonably high costs or undesirable investment options to choose from. As part of the plan package, you should receive a disclosure about the fees associated with the plan and a chart documenting the past performance of the investment options included in the plan. If you find that the investment choices are limited or that there are numerous fees charged for holding the account, then the plan may be designed for the benefit of the plan administrator, not the employees. In these cases, you may do better starting a retirement funding account with your local bank that has low fees and investment choices that you are interested in.
Have you decided not to participate in your company’s 401(k) plan? Have you still been able to save for retirement?
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