Just finished reviewing my benefits package at the firm. My company offers a 25% match on the first 6%, but only after 12 months of continuous work. I'm prudent and conservative with spending, and I maintain a strict budget with my income. I'm also fairly knowledgeable about markets, knowledgeable enough to feel comfortable investing through my Scottrade Account. Therefore, is there any benefit in giving money to Fidelity Retirement now, when Scottrade's fees and Vanguard's mutual funds are cheaper?
Jul 20, 2012
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That's a pretty crappy policy, but you should definitely still take advantage of it. If you prefer your personal account just put 6% in your 401(k) and put it in buy and hold investments. Then save the rest in your personal account or an IRA.
There is no reason to pass on the free money from your firm.
Why not take free money..?
If it were me, I'd probably keep the money. But that's because I'm trying to save up and move to Asia in a couple years. (I hear you get taxed heavily if you cash out the 401K early, so I wouldn't get that 25% match after cashing it out, I'm guessing.) If you intend to just work for the rest of your life and don't see yourself needing a lump of cash for the next few years, I'd say take the free money (25% is better than nothing).
I'll definitely take the free money. However, my firm allows us to change our 401K payment schedule at any time. Therefore, I was considering putting in the first payment after 12 months, thus gaining the 25 cents on the dollar. The debate is more or less if I should contribute the first 12 months on the job, as there is no match yet. Thanks for the responses.
The 25% bonus is worth it. And a 401k makes an awful lot of sense if you plan on doing an MBA full-time in a few years.
Contribute to the 401k (roth if you can) up to the max that they contribute. Then max out your roth IRA if you qualify based on income limitations. People always say to defer taxes as long as possible but I would rather pay the tax on contributing to a roth now and have that money come out tax free later. I don't see taxes being low when we are old enough to retire.
I mean, it seems as though it will be about $250/yr in "free money". Can't see why you wouldn't at least contribute the maximum matched amount.
It sucks when your 401k vests in 3 years and you leave the firm after 2 years and 11 months.
I was lucky that my firm vested 25% per year over four years. Had I stayed nine more weeks, I would have walked away with a lot more money, but I'm happy for what I did walk away with.
For the record, I love saving money more than Brady loves getting an MBA, more than blastoise loves trolling people with math problems.
IMHO I would hold off to the 12 month mark. Obviously you never pass up the "free money" but that doesn’t kick in until then. At that point you should contribute enough to get the match. But if you're good at saving like you said there isn't a huge incentive to pour money into the 401k without the match. It all depends on your need for the money. Saving for retirement is smart and a 401k is a good play but you can't really touch that money until retirement ago without penalty. I think saving on your own until then just gives you more flexibility.
That's incorrect. There are many ways to access the funds before 59.5. Loans, education expenses, buying a house, healthcare, financial hardship, etc.
dabanobo:
sorry for not being clear you are correct. what i meant by saying "can't really" is that your money is not as easily available as other savings might be if you need them in the short term. Yes there are ways to withdraw before retirement age like you mentioned.
r share mutual funds are cheaper than retail brokerage, also creditors cannot access the funds. only in the case of a divorce can they be distributed against your will (ok, if you're 70 1/2 there are required minimum distributions). also it reduces your taxable income and as mentioned, you have hardship withdrawals and loans that MAY BE ALLOWED. NOT ALL EMPLOYERS OFFER THESE so dabanobo you need to be careful acting like every defined contribution plan is the same.
Obviously they're not all the same. We're talking about the 10% extra tax for early distribution -- from the IRS -- not the 401K provider (and definitely not your employer).
I'm saying not all plans even allow for early distributions and/or loans. These are set by the employer, not the IRS. The IRS allows these but it's the employer's choice to implement them. The only early distribution that's really guaranteed regardless is if you leave employment and withdrawal.
Yes and yes. Forced savings and an effective raise. Do it!!!
dont know if anyone mentioned it, but contributing to your 401(K) also lowers your tax base accordingly, so even if its not matched, you can still save ~30 cents per dollar invested (varies based on your tax bracket)
also, does that 25% match on 6% start after 12 months, or does matching start now but vests after a year?
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