IRA vs 401k

[xospec1alk]

I started putting money into my 401k before i realized that my company does not match any contributions. I hear that if that is the case then opening an IRA is a better option. So what can/should i do now? close the 401k and transfer to an ira? what would be the best plan of attack now?

 

[EagleKeeper]

NM - clarified below

 

[DaveSimmons]

You can have both a Roth IRA (after-tax contributions) and your 410k, but you can't have a traditional (pre-tax) IRA.

With no matching, you should put the maximum into your Roth IRA, then after that put money into your 401k if you can afford to and it offers at least half-decent mutual funds.

You still get an instant 30% growth in your 410k money from the tax savings, and when you change jobs you can "roll over" the money to a brokerage that will let you buy good funds.

For the Roth IRA, I'd suggest www.Vanguard.com and their VFINX fund (S&P 500 index). If you put in the $3,000 for 2004 and another $2,000 for 2005 you can avoid paying any account maintenance fees.

 

[xospec1alk]

But I kinda wanted to minimize how much is taken outta my paycheck every month hehe. Currently 5% of my check goes to my 401k...theoretically I guess i could split it up but is there any benefit to having both? or one or the other in this case since my company does not match? Can i just stop putting money in the 401k and just exclusivley put it in an ira? and an IRA is independent of the ocmpany you work for rite?


Oh so I can only put in 3000 into an IRA? so then once i hit that I can just put the rest into my 401k huh? that would require a lot of account maintenance on my part rite? like telling my 401k when to put money in and/or not put money in and stuff?

 

[Yossarian]

I always thought it was weird that you get the most benefit out of your 401k by quitting your job. Then you can roll it into a pretax IRA and choose exactly what you want to invest in.

 

[FlyLice]

BOTH

BUT wait until your co matches 401k

 

[xospec1alk]

Originally posted by: FlyLice
BOTH

BUT wait until your co matches 401k

I dont quite understand?

 

[RossMAN]

Why doesn't your company match 401k contributions?

Most companies do match. Or do you mean you aren't eligible or are not vested?

Usually you have to work there 1, 3 or 5 years before you are fully "vested".

 

[xospec1alk]

Originally posted by: RossMAN
Why doesn't your company match 401k contributions?

Most companies do match. Or do you mean you aren't eligible or are not vested?

Usually you have to work there 1, 3 or 5 years before you are fully "vested".

they don't match because they are a bunch of cheapos i think. The employee handbook says they won't/don't match...I should have read that before I signed up for t hat damn 401k

OK to clarify this is what they say in the handbook

You may contribute from a minimum of 1% to a maximum of 15% or your annual gross income up to the annual cap [subject to change by the IRS from year to year]. ----, at its discretion, may make an annual matching contribution to those employees in the 401k plan by march 15th of the following year. You will be provided with all the necessary investment information prior to joining the --- 401K plan.

 

[DaveSimmons]

Originally posted by: xospec1alk
Oh so I can only put in 3000 into an IRA? so then once i hit that I can just put the rest into my 401k huh? that would require a lot of account maintenance on my part rite? like telling my 401k when to put money in and/or not put money in and stuff?

You fund the Roth by writing a check, so the easiest thing to do is work out a budget:
1. figure how much you'll put aside for the Roth every month
2. figure out how much extra you can afford to put into the 401k on top of that.

For 2. remember that if you put say $100 into the 401k, it only reduces your take-home pay by $80 (or less) since 401k contributions are before taxes. If you tried to keep the $100, $20+ would go straight to the IRS.

For 1., you might even set up an automatic payment plan with Vanguard.com to have the money taken out of your checking account -- I think they can do that.

 

[RossMAN]

Originally posted by: xospec1alk

Originally posted by: RossMAN
Why doesn't your company match 401k contributions?

Most companies do match. Or do you mean you aren't eligible or are not vested?

Usually you have to work there 1, 3 or 5 years before you are fully "vested".

they don't match because they are a bunch of cheapos i think. The employee handbook says they won't/don't match...I should have read that before I signed up for t hat damn 401k

Then I would suggest:

1) Stop contributing to your 401k but do not close/cash/roll it over.

2) Open a Roth IRA and contribute the MAX for 2004.

3) Contribute the MAX to your Roth IRA for 2005.

4) Resume contributions to your 401k

I'm no financial advisor but since your cheap ass employer doesn't match, that's what I would do in your situation.

 

[shenaniganz]

Originally posted by: RossMAN
Why doesn't your company match 401k contributions?

Most companies do match. Or do you mean you aren't eligible or are not vested?

Usually you have to work there 1, 3 or 5 years before you are fully "vested".

Most companies match, but I've heard of some that don't. I think the main reason for this, is that they can advertise it as a benefit, when in reality it isn't really one. The place that my wife works for matches $50 a year--pretty much a slap in the face.

 

[RossMAN]

Originally posted by: shenaniganz

Originally posted by: RossMAN
Why doesn't your company match 401k contributions?

Most companies do match. Or do you mean you aren't eligible or are not vested?

Usually you have to work there 1, 3 or 5 years before you are fully "vested".

Most companies match, but I've heard of some that don't. I think the main reason for this, is that they can advertise it as a benefit, when in reality it isn't really one. The place that my wife works for matches $50 a year--pretty much a slap in the face.

You're kidding me only $50/yr match? That's like only matching 1 month salary 😱

 

[xospec1alk]

i wouldn't mind a 50/yr slap in the face...better than 0....hehe