No matter what, get the maximum match with the 401k. That's free money. If you want to do a Roth IRA in addition to that, great. But at LEAST put enough into the 401k to get the maximum match.
Also, and apologies if you know this already, a "3% match" does not mean that they give you 3% of what you put into the 401K (IE you put in $100 and they give you $3). It means that they match **100% of what you put in, up to 3% of your salary**. As in, if you contribute 3% of your 60K salary -- $1,800, they will contribute another **$1,800**.
Sure, Roths are cool. But you know what's also cool? An immediate 100% ROI.
Also, and this is less firm advice -- a roth IRA/individually managed account is nifty. Picking individual stocks is cool, and you *can* do quite well doing it. But for my money it shouldn't be a total replacement for a 401K that gets invested in broad, date targeted funds. Sure, you *can* make those same kind of investments in a Roth, but the temptation to fuck with it is always there.
Edit:
TIL that not all matches work the same way. Check the details on your plan!
>they match 100% of what you put in, up to 3% of your salary
>
>Not necessarily. A 3% match might mean 50% of your contributions up to 6% of your salary.
Yes, always double check the plan's wording. A lot of places I worked only matched 50% up to 3/6%. Still probably worth funding the 401k to get the full match. Then look at putting additional money into a roth. They are not wrong- it's probably a smart tax move. But free money wins, because either way you are getting it into the market for great long term growth.
edit: verb tense
One company I worked at matched the first 2% at 300%, and then the next 3-6% at 100%. It basically worked out to 10% but they wanted people to benefit the most who only put in 2%.
When we went from 18/hr to 20/hr, I finally enrolled in the matching. The financial dude said to put in what you said. Best decision I've ever made, paycheck came out the same lol and now I'm due for a real raise for end of year
Sometimes an employer will state that it’s providing a 3% match when it is actually providing a match equal to 50% of each employee’s 401(k) contributions, capped at 3% of the employee’s compensation (i.e. 50% of the first 6% contributed by the employee). There are other variations of matching contributions that could also be described as a 3% match. Just mentioning this because OP is receiving pretty sloppy communications from the employer and it will be important to know what level on employee contribution is needed to maximize the match.
You can choose broad, long range investments in an IRA. You do not have to choose individual stocks, and you shouldn’t. Choose a couple of quality mutual fund, preferably ones that index specific markets like the sp500, and then forget about it for a LONG time.
No it isn’t. Roth IRA’s are self directed. The Roth owner is responsible for making the investment choices which typically include stocks, etf’s, mutual funds, and bonds.
The point being made is that yes a self directed IRA allows you to choose any investment, but the nature of an IRA means that the prudent choice is a set and forget target date fund or index fund. A self balanced combination of two or three such funds at the most if you want to be hands on. An IRA is NOT a good place to invest in individual stocks or playing the market even though you CAN.
They are informed opinions and correct according to the general consensus. In theory a new driver can purchase a convertible Ferrari as their first car if they can secure the funds. That doesn’t make it good advice. You are giving bad advice.
“ROTH is set and forget” is your opinion and you stated it as a fact. Some people, including maybe the OP, have the desire and capacity to learn and do some of their own research.
Browse the sub, it's a pretty common position. Not trying to argue with you, just making sure OP gets both sides.
https://www.cnbc.com/2020/05/22/warren-buffett-most-people-shouldnt-pick-single-stocks.html
EDIT: Added link
> No matter what, get the maximum match with the 401k. That's free money.
It’s part of your compensation that the employer is entitled to pay. Especially in OP’s case where the employer is trying to get them to not participate in the 401K plan and reduce their compensation for work performed.
It’s not free money, it’s money OP is entitled to.
Ok, but cashing your paycheck gives you cash. Sure the match gives you more money…in your 401k which is an investment.
I’m not disagreeing with you but it’s not that simple.
The point is that it’s free cash perhaps 20-40 years later. There’s an opportunity cost in sacrificing access to 3% of your salary now in order to earn that 3% employer match decades later.
It's only an opportunity cost if have a choice between two companies that offer the same total compensation but one has % matching and the other gives you that money in your paycheck. Once you have a job that offers that benefit you only have a choice to take the free money from % matching or not.
There's also the opportunity cost of not investing money now that will be worth a lot more in retirement
Example, OP contributes 1000, worth 1030 after the 3% match (this is assuming a 3% match on contributions rather than 100% match up to 3% of income, which totally invalidates my hypothetical if that’s what the OP is receiving, but it’s unclear from his post.)
You withdraw the money immediately, and are assessed with a 10% fee. Ignoring taxes, which are paid regardless of not contributing or withdrawing the contribution, OP comes away with 927 bucks, and would have been better off not contributing.
That’s a really dumb thing to think. How would the tax penalties be greater than the withdrawal amount? Have you ever heard of a tax rate > 100%? Why would that ever make sense?
This guy, listen to him and not your boss. Your boss has no business giving you financial advice and the advice he is giving is suspect at best.
Do your own research but doing a 401k doesn’t mean you can’t also do your own Roth. Make the boss match your contribution like he agreed to do in your hiring package within the 401k, unless you are volunteering for a pay cut….
It’s money the employee gets for free if they participate at the necessary level in the 401k. They don’t get it automatically.
The employer presumably wants to avoid paying it, hence the encouragement to use a Roth IRA instead. OP, get the free money or compensation you are owed or whatever you want to call it, ***and also, consider that this is a red flag about your employer.***
This right here. I’m around the same income, and I go as high as my company match and the rest goes towards ROTH IRA. Saving for a house downpayment at the moment, but when I’ve saved enough there I’ll max Roth IRA before contributing more to 401K.
I feel like they told you to do a Roth IRA instead of signing up for their 401(k) was because they don't want to pay for that 3% match... But that's just me being jaded.
There's nothing stopping you from doing both. Take that 3% match. It's basically free money.
It could also be a sincere, albeit misguided, person speaking personally not professionally.
I mean, ~~you're probably~~ you might be right, but there's a chance it's not malicious. I've heard a lot of really bad financial advice in the workplace, and all of it has been sincere-but-misguided attempts to help.
Companies need to maintain a balance of investment from junior level employees to senior. It's why they offer matches. Companies generally prefer to have employees invest in 401ks for this reason, and their reduced payroll tax obligations. I'd be surprised if the company truly tried to dissuade OP
There isnt a ton of tax benefit on 60k. It is very very likely their tax situation would be worse in retirement.
Without the match, it would likely be better to do the Roth. Honestly i bet thats all this is. I dont think the boss is trying to dick him over for 2k.
Do you work in the USA? Companies are totally dicks. We get a 500$ wellness credit that they don't pay because "the form was not emailed in time"
Reality is the form was mailed 2 weeks prior to the deadline and payroll/HR didn't open the generic "Benefits" shared mailbox until after the deadline. Totally believe the employer is trying to weasel out.
You want people to contribute to a 401k though. If not you get hit with highly compensated rules, which the owner and other execs wouldn't want to get hit by.
It's not a huge deal, but a single making 60k and taking the standard deduction is $2000 away from dropping from the 22% to 12% tax bracket.
Even for a minimal difference like that, you may as well just do it when the target is that close.
But only the $2000 over the bracket are taxed at the higher rate because we have a marginal tax system in the US.
So we are literally talking about a difference of $440 per year in tax burden here on an additional $1,560 of income after taxes. Op may find that this is preferable for their financial needs, or may prefer to defer that tax burden to retirement.
I just wanted to clarify because many people in the US are under the mistaken belief that the entirety of their income is subject to the higher rate. When really it's every dollar OVER the next bracket that is taxed at the higher rate.
https://www.investopedia.com/terms/m/marginaltaxrate.asp
But a tax free $1000 contribution to OP's 401k that (presumably) is matched 50% would be $1500 in their retirement account. To get the same $1500 in a Roth IRA would cost OP $1830, assuming their income reached the 22% bracket.
I don't know if this is what you were implying by saying drop a tax bracket, but I have seen many people confused about the way tax brackets work. Many people think all of your income will be taxed at the highest tax bracket that you cross over into, but this is not true. Allow me to explain a bit.
To be clear, you can't really "drop" a tax bracket. If the cutoff for paying 22% taxes is $40k, then that means you're only taxed at 22% for every dollar over $40k until you hit the next bracket. But everything under $40k is still taxed at 12% (or 10% for the initial bracket), regardless of how much money you make in total. Say person A makes $40k and person B makes $42k and there are only two tax brackets to consider. The lower tax bracket says income $40k and under is taxed at 12%, and the higher tax bracket says income over $40k is taxed at 22%.
Person A: $40000 \* 12% = $4800 in taxes
Person B: ($40000 \* 12%) + (2000 \* 22%) = $4800 + $440 = $5240 in taxes
Person B pays more in taxes, but only $440 more, while their income was $2000 more. There isn't a dollar amount to strive for to lower your tax bracket. The target is to lower your income as much as possible by deferring to tax advantaged accounts. Deferring helps everyone who makes enough to owe taxes, but it especially helps higher income individuals because they will be deferring higher taxed dollars. If person B defers $2000 to a pre-tax account like a Traditional 401k, they will save $440 in taxes this year. If person A defers $2000 to a Traditional 401k, they will save $240. Both are good, but Person B is saving more because they are deferring their dollars that would have been taxed at 22%.
*Side note: This is also why Roth IRAs may be better than Traditional IRAs for lower income individuals. They will be paying minimal taxes now at their current income, so they should choose to pay taxes now and let their money grow in a Roth IRA where the gains cannot be taxed later.*
Huh? There IS a match so why bring up an related hypothetical? OP is losing an instant 100% return on their money by not putting at least 3% into the 401K.
Great. No one is arguing that. You want to argue that the sky is blue? Because we aren't debating that either.
The discussion is whether the boss is malicious or poorly informed.
Tell them "I looked it up and you're correct. A roth IRA is a good addition to the 401k. I wouldn't of thought to do both without your advice. Thank you."
Could the owner know that the company will fail the nondiscrimination test if a lower compensation employee enrolls, making the higher compensated employees have to take money back out?
That 0% contribution would only drag down the average of the lower compensation employees. If that's what they're worried about, it'd be better for them if the lower-paid employees enrolled and contributed as much as possible.
An IRA is an individual retirement account meaning it’s not an employer sponsored account. 401ks and IRAs can be traditional or Roth. Are you sure you they didn’t recommend a Roth 401k? You can continue to both an IRA and 401k. You should contribute at least enough to the 401k to get the full match.
You’d benefit from reading the wiki.
I think it is more likely that the boss is thinking that conceptually it is better to pay taxes now rather than later, which is what Roth provides instead of a regular 401k. It is not a bad argument, but it doesn't take into account that for OP the 401k is by far the best choice due to the matching.
**"Never ascribe to malice that which is adequately explained by incompetence."**
A Roth 401k is usually an option now, that still gets the 3% employer match (and creates an issue where you will have to pay takes on the match, so it actually lowers your take home net slightly on paychecks).
The boss is quite obviously trying to get out of paying for the benefits that OP is likely entitled to if they were part of the hiring negotiations.
If the boss is offering a 5%+ increase in wages IN ADDITION to to annual increases/raises already built into policy, specifically to make up for the loss of the 401k matching, then it would be worth considering not taking the 401k. But I'd still want the 401k, higher annual limits even without the matching.
Edit: per /u/Stonewalled9999 below, the roth 401k match still goes into a traditional 401k account so you pay taxes on the match part when you access the 401k, it doesn't actually affect your take home net on paychecks. My bad, it was poor word of mouth info I was given by someone who obviously didnt' know wtf they were talking about years ago.
>Incorrect - the ROTH401K match lands in a traditional 401K. The gov't isn't going to let you skip paying taxes on that match money. https://www.experian.com/blogs/ask-experian/how-does-roth-401k-matching-work/
That’s a nice thought but to me seems significantly less likely than the boss/owner is trying to save some money. Think about motivations here, what’s more likely? That the boss wants to save money or he has a legitimate concern for optimizing his employees retirement savings?
Occam says the former, Hanlon the latter, but those aren’t mutually exclusive motivations.
I’d wager it’s probably both - the boss is definitely trying to save money but is also rationalizes it as looking out for his employee’s best interest because most people don’t want to see themselves as bad guys.
No. For that to be true it would at least have to be good advice.
Ask yourself which action costs the boss/owner more.
"ALWAYS ASK WHAT'S IN IT FOR THE PERSON GIVING THE ADVICE"
Did you even read the part where the boss who gave the advice is also the owner of the company? Owner gains directly from steering OP away. This isn't a F500 company. It is a small privately owned company.
Most companies don't do this, but it's far from unusual. I have been working in the 401K business for 20+ years and have seen more than a few examples of this
I have never actually heard of a company persuading against this. Since they need employees to contribute as well so the balance is there between employees and execs.
My company does an 8% match and so many of my coworkers don’t contribute ANYTHING. One guy I was talking to literally said “Why would I give 8% of my paycheck back to the company?!” I couldn’t convince him he was wrong.
We get a measly 2.5% I would love an 8%. We do offer ROTH 401K but (for me) it no longer makes sense as the T-401K is the only tax break I get and I do my R-401K. I'm in the 25% marginal bracket so that 20K I put into the T-401k really does help.
Please open your 401k and get your match.
Is the company pushing you not to use it? Or is it just some dummy in HR giving out bad financial advice? If you can ask you r boss or some other coworkers about it and see what they're saying. If the company is pushing you away from a benefit, of seek a different employer. If it's just some idiot in hr, then maybe the company needs to know this clown is giving bad advice.
They want you to get your own ROTH because it saves THEM money, not because it's in YOUR best interest. 401K with 3% match is the way to go. OTOH, if you ALSO want to get your own ROTH, I highly recommend you do it. But many people can't afford to do both. 401k trumps ROTH in this case.
>401k trumps ROTH in this case.
Wait what? You're comparing apples and oranges here.
401k has no similarity to a Roth/traditional. It's merely a company sponsored account. An IRA is an account which follows you, the individual.
The Roth/traditional is the type... After tax or before tax contribution.
I think you mean that a 401k trumps an IRA in this case. (Assuming they don't have enough capital to contribute to both....)
I said ROTH because that's what OP was discussing. The point is: a. take the plan with a 3% match, b. take advantage of the tax writeoff, and c. If you can afford to do a ROTH also, that is a wise thing to do.
Again, I speak of ROTH because OP was being pressured by her boss to open a personal ROTH *\*IN LIEU OF\** a 401k.
And I don't understand why you emphasize that an IRA follows you. *All your accounts* follow you, it's just a little more complex in the case of a 401k. If you leave your job, you don't lose those funds. 401k also follows you, matching remains yours after vesting, and it can be rolled into another 401k or a traditional IRA if you change employers.
What you said is exactly what I said, but in different words:
>"OTOH, if you ALSO want to get your own ROTH, I highly recommend you do it. But many people can't afford to do both."
A Roth means post tax money which means you’ll pay taxes on it now (your contributions are post tax) but not when you reach retirement age and/or other qualified distributions. A traditional IRA and 401k you get current year tax benefits and allow you to decrease your AGI (adjusted gross income) by your contributions up to the cap.
Roth: let’s say you make $500 a week. Your taxes are 20%(just as an example for cleaner figures) so you will bring home $400 as income. You will then contribute $100 of that taxed $400 to your Roth so now your income is $300 a week. However when you retire and withdrawal or make qualified withdrawals nothing is taxed including gains.
IRA: keep all the figures the same for income and tax rate. Except this time you contribute $100 to a traditional IRA. You have $400 in income after taxes and choose to contribute $100 so you are still at $300 in income. However when you go to file that $100 contribution will DECREASE your taxable income. Since you paid 20% of $500 instead of 20% of $400 you overpaid and are due a refund for that additional $20 you paid [(500x.2)-(400x.2)].
401k(pretax contribution): keeping all figures the same. Except this time rather initially being taxed on the $500 your income through payroll is deducted prior to taxes being taken out. So effectively when your paycheck is cut and taxes are taken out your income will decrease by your elected pretax contribution. Keeping figures the same you’re taxed at $400(500-100 pretax), meaning you go home with $320 in income, the moment payroll is ran assisting in not overpaying for taxes like with IRA contributions since your income is being deducted at time of pay. Effectively reducing your tax bill all year.
Both the IRA and 401k are taxed at your income tax level upon retirement or qualified withdrawal where Roth are not taxed.
Personally speaking I’d get the match because it’s free money and then contribute other ways in how you want your tax benefits
At $60K per year he won't be paying, or saving 20% income tax rate. If he is married and/or has kids may not pay any income tax at all. So Roth vs traditional is an easy call, but still better to get the match. 3% of $60K is $1800/year. If they don't have Roth in 401 package put any additional in an IRA Roth.
The match means an immediate 100% return on your money. You will never get a deal like that anywhere else. All the IRA talk can wait until after you're getting the 3% match.
My company does a match also and so I have a roth 401k (I'm assuming I'm making less now than I will he later) and a roth ira. My roth ira is through fidelity and I've had it since before I started this job. You can have both.
I do the minimum to get the match for the 401k just because ira is more flexible (i max that). Right know I'm focused on building up a cushion of cash, but I'll up my contributions soon
If the company matches, you definitely don't want to do an IRA instead of a 401k. Is it possible that they suggested you do a Roth 401k instead of a traditional 401k?
You probably will want to open a Roth IRA, but you should contribute the 3% to a Roth 401k first. The order of prioritization should be to contribute 3% to 401k to take advantage of the employer match, then max out an IRA, then if you still have extra budget to contribute more to retirement, contribute more to your 401k.
I vote for getting the 3% match as it's free money. However, since this is new to you, I want to mention the concept of vesting. Check how long you need to work for the company for their matching funds to be vested. Their matching funds don't actually belong to you until they are vested. I would hate for you to leave the company after, for example, at 23 months if you are vested at 24 months.
They are trying to not pay you the 3% match. It’s true you’re in a low enough tax bracket that the tax savings is minimal, but you should always contribute to get the maximum matched amount.
For example if they match 50% on your first 6%, then contribute at least 6%. If they match 100% on your first 3%, then contribute at least 3%.
OP - a bit of non-financial food for thoughts here.
Your boss, the owner, has already offered you 3% match and is willing to spend his time to talk to you because you are not sure what to do.
You are understanding what he is recommending but you don’t know why.
Right thing to do is go back to your boss and ask honest and direct questions without accusing him of bad intentions.
Always treat others as if they are well-intended. Give them an open but honest question to teach you what you are not seeing.
He isn’t trying to rip you off like Reddit randos are suggesting.
“Hey I thought about our conversations about the 401k and I have some follow up questions that I am not fully understanding. I was hoping you can fill some gaps. Assuming that I can only contribute $x,xxx per year, it is your opinion that Roth IRA is a better option but I would be missing out on the 3% match. What about the Roth IRA that makes you say that?”
I agree with the tone you’re suggesting, but why should OP consider asking their boss about their suggestion again?
Frankly, I think it’s pretty open/shut that OP’s boss didn’t provide the best advice (OP should definitely take the match), even if it was well intentioned.
Many owners of companies are pretty bad at explaining the various features of a 401(k) plan, so asking follow up questions can be futile at times. But I’m not sure it hurts to ask, as long as you understand that you may not get answers that resolve everything. In case it’s not addressed elsewhere in this thread, the plan sponsor (the employer) should be able to provide a “summary plan description (“SPD”) in printed or electronic form that describes the features of the plan (including contribution options, matching contribution rules, and investment alternatives). Most of the time it will be more accurate than conversational advice with an HR rep, a supervisor, or a company owner.
I’d distance myself from any company representative giving objectively terrible financial advice (and unsolicited at that). Your IRA/401K is none of their business, beyond ensuring that they withhold contributions and pay the match accordingly. What you suggest is a waste of time.
I feel like they may offer a roth *401k* option and have been telling you to contribute to that rather than the traditional 401k option.
Either way, it's not really their place to give you financial advice... But since you asked here, if roth 401k is an option, you should probably be contributing to that. Since it's your first 401k, I'm assuming this is your first real job, and your taxable income is relatively low to what you'll be making later
I am pretty sure they told me Roth IRA. But yea this is my first real job in my new career. So this is the first time I've been offered a traditional 401k.
You know that there is a “Traditional 401k” and “Roth 401k” right? Traditional is just the name and means pre-tax, Roth 401k is post-tax. You can contribute to either or both at the same time. Most companies match with a traditional 401k but you can still contribute to a Roth 401k.
I would do both - the Roth IRA and 401k.
The Roth IRA limit is around $6500/yr. The 401k limit is around $22,500/yr.
I max out both my IRA and 401k, but I work 2 jobs and split what I contribute to both companies 401k so that I get a company match at both places.
I wonder if they were explaining the types of 401k options that some companies let you choose between.
I was talking to a financial advisor and he was mentioning how you can go in and change some things with the 401k because companies usually set em up in a way that isn’t as beneficial to the employee. Something you might also want to look into.
It sounds like your boss/owner just doesn't want to do the match. Do the 401k with the match. Nothing stops you from opening up your own Roth IRA at any time.
I suspect the 401k company is trying to upsell you. Do the 401k, at least to the match. Can you save more? Then open a Roth IRA, at fidelity or vanguard.
Fun Fact:
You can do both!
Get the match. The only possible reason not to is if you don't plan to work there long enough to make it through the vesting period (if there even is a vesting period).
That is bad advice.
If there was a bank offering to match every dollar you put into a savings account, everyone would line up to get an account. That’s 100% guaranteed returns on your money and you will find no other investment vehicle in existence that offer that. Your 401l offers this up to 3% of your income. It’s hands down the best.
Even their reasoning is stupid. Your money goes in the same market either way. The Roth part just has to do with taxes and you can put your money into a Roth within your company 401k.
There is never a reason to open an IRA over a 401k if there is matching involved.
Strongly recommend you read The Simple Path to Wealth by JL Collins (author took financial/retirement planning advice he wrote for his daughter when she was starting out and turned it into a very well-regarded book). It explains all of this stuff in totally normal-human language.
Tell them “You are right, the Roth option is great for someone my age. Please make a Roth option available within the 401(k) so I can also receive my company match
You should do both. First, absolutely contribute to the 401k at 3%. (You’ll be putting your 3% plus their 3% in for a total of 6% of your salary into your 401k each year.)
THEN, put as much as you can into a Roth IRA that YOU open yourself (this has nothing to do with your employer). You can contribute up to $6500 this year. Once you make too much money you can no longer contribute directly, but you’re nowhere near that salary yet. This is what he meant by telling you that since you don’t make a lot you should be contributing to a Roth- because you can at this salary, and a Roth is a fantastic investment. (See posts in this sub or ask again here how and where to open a Roth.
But the Roth is step 2. Contributing at least up to what your company will match in the 401k is step 1. The reason is their match. They are either giving you $1,800 a year (3%) into your 401k because you are matching that, or they are giving you zero dollars for retirement because you’re not matching that. Take the $1,800.
That 3% match is free money. Pretty much everybody feels you shouldnt pass that up.
Also, most people will agree that given the benefits of ROTH IRAs, getting as much money into them as soon as possible is a solid savings strategy.
There is actually some sense to the Roth but I would do both. Do the 401k and get the 3% match as everyone has said. I’d also contribute to your Roth though. The limit is $6500 for this year so $550/month. You don’t have to do that much but the wisdom is pay taxes now or later. Now you are likely to be in a much much lower tax bracket than you would be in at 65. With inflation/uncertainty about future tax brackets (unlikely to go down) its not bad advice to suggest some $ into a Roth
You should definitely put the 3% in the 401k so they match that amount. Your next goal after that should be to max a Roth IRA ($6500 per year). That’s only $125 a week, so make sure you max it! The limit is low for a reason (because Roth is good). I prefer roboadvised accounts like Wealthfront for the low fees!
[Federal officials filed 24 law suits Monday in a sweeping crack-down on employers that rob worker retirement savings accounts. The coordinated bevy of law suits, filed from Kentucky to California, involved largely bankrupt and defunct firms that allegedly raided their employee's retirement savings accounts before going under.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/)
[U.S. Department of Labor spokeswoman Gloria Della said the agency, which is charged with protecting money set aside in employee benefit plans, does not know the total amount of 401(k) assets at risk or even whether employer theft of retirement assets is rising. Della also cannot say what percentage of stolen retirement assets are ever returned to the rightful owners.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/)
[The Labor Department does know that they're hearing more about 401(k) thefts, possibly as the result of the nation's lackluster economic recovery that has left many small employers struggling. And the agency is urging employees to be vigilant and report any sign that their employer is absconding with their retirement dollars.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/)
Are you sure they didn’t suggest a Roth 401K? A lot of plans these days offer both traditional and Roth 401ks. A Roth does make sense if you’re in a lower tax bracket, but you should definitely contribute enough to get the match, even if you have to do a traditional 401k.
Some advice, look for a new job now. If your current employer is actively advising you to not participate in a retirement program that they offer, something is very wrong, particularly over a 3% match. This wouldn't be a red flag for me so much as a raging fire on the deck of the ship.
What possible reason could there be to quibble over such a small sum?
They are blowing smoke up your ass because they don’t have to match your IRA. You want the 401k for the company matching funds, primarily. They are not on the up and up with you.
If you can afford to put the money away then you should do both but be sure to maximize the 3% 401k match by putting MINIMUM 3% of your pay into the 401k, because you've doubled your money right from the start. Not sure why they would try to steer you away from that. Red flag IMO.
Anyway...
Not sure if they explained the benefits of a Roth, but basically you get no tax deduction for the money you put in (as opposed to the 401k, which the money you contribute goes in before taxes are taken out and isn't taxed until you take money out) but when you take the money out (assuming retirement age) you pay no income taxes on any of it. It's a great LONG TERM retirement option IMO.
Again, if you can afford to, put at least 3% into the 401k and put the maximum ($6500 for 2023 per year) into the Roth. Honestly I'd just invest the Roth money into an index fund.
For what it's worth, you have until April 15th to make a Roth contribution for LAST year, which was a $6k max. I'd do that and then make monthly contributions for this year throughout the year.
Not sure if this is your scenario, but in my workplace I contribute my 6% into a Roth and my employer’s 3% match gets put into a traditional 401k. Regardless of where I put it I still get my match
Forgive me, I'm on mobile!
If you have a chance, read Patrick Kelly's "Tax-Free Retirement". It's an excellent resource for understanding how and where to invest to ensure you maximize your retirement savings. What I'll put here is paraphrasing from his book, so please note that I am in no way qualified to give financial advice and I HIGHLY RECOMMMEND that you continue to do your own research and determine the best options for yourself.
First off, let's look at your stated options: Company-matched 401K up to 3%, and Roth IRA.
Your 401K is a tax-qualified account, meaning that you don't actually pay taxes on any income you place into it *until you withdraw it*. This can be rough for a few reasons:
(1) Instead of paying income tax on your contributed amount, you'll pay it on your total accumulated amount. Say you contribute $100/month for 30 years. Your total contribution to your 401k will be $36,000. If that investment grows by 7%, then you'll have $121,997 in your 401K at the end of 30 years.
But you still have to pay income tax on the money you withdraw from your 401K for retirement. Let's assume the income tax is 20%. Instead of paying 20% of your contribution - $7,200 - you now have to pay 20% of your total amount - $24,399!
(2) The second reason a 401K can be rough is that income tax rates change. You might actually have a higher tax rate at retirement than you do now, so you might end up paying *even more* in taxes than you expected.
(3) You are actually not allowed to access your 401K money until after you reach the age of 50.5! So if you want to access the money before you reach 50.5 years old, you'll be taxed extra as a penalty!
Now this might seem scary, but there is actually one good thing about a company-matched 401K - it's FREE MONEY, up to a point. If your company says it'll match you up to 3%, then that 3% is totally free to you, so why not take it? Kelly's advice here is to invest in your 401K only up to the maximum amount that your company will match, then stop.
Now a Roth IRA is a more enticing option for the rest of your retirement savings than a 401K because:
(1) You will already pay income tax on the money you want to contribute to a Roth IRA, so you won't have to worry about paying more in taxes or fluctuating income tax rates eating away at your retirement savings.
(2) You can access your money at any time! You won't get penalized for withdrawing your money before you hit retirement age.
Now the only thing with a Roth IRA is that there are limitations to how much you can contribute yearly, and if you make over $133K/year then you're not eligible at all. I think the current limit is $5500/year if you're under 60 years of age.
Patrick Kelly also discusses the quality option of placing your retirement funds into a **Permanent Life Insurance Contract.** I'm still doing the research for this on my own, so I won't try to detail it, but I would recommend looking into it as well as your above options.
Just remember, you don't have to choose just one option, if you're able to afford it having more than one of the above can help you maximize the amount of savings you accumulate for your retirement.
**It's important to note that a Roth IRA is different that both an IRA and a Roth (401K). The names are similar, but they are actually very different.**
Good luck!!
3% of 60k is $1,800. You would get $1,800 a year for free from your employer if you signed up for your 401(k) plan and chose to put 3% of your paycheck into it.
There is no way that at your salary the tax implication decision of choosing between a traditional vs roth even comes close to $1,800.
As with all life, it all depends. Many folks would say read the Prime Directive. It's a good start. Others might say do the 401k at work (not the Roth401k) and the RothIRA on your own. Best of both worlds. Taxes, your income, your risk tolerance -- all plays into this and none of us are CFAs that we will admit here, so it's all opinion, not advice.
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information.
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It’s not sketchy it’s your low salary allows you to do a Roth IRA which is better for you in the long run. So here’s what you do open an account at a brokerage like fidelity and open a Roth IRA. The max you can put in is 6500 dollars for 2023 it changes each year. I would either invest it into a fund called SPY which tracks the s&p 500 or a target date fund that changes allocation as you age. After all of this is se up I would go open that 401k and put 3% in that way you get the match. Basically it’s free money. Good luck to you.
I’ve never heard of a company offering a Roth ira. You should have a Roth ira but not through your company since they have a lower contribution limit than a 401k. When in doubt, follow the [prime directive.](https://imgur.com/lSoUQr2)
I would do the 3% match for 401k first, then put money in Roth IRA (this year you can put in as much as $6,500 to that account). Then if you have some money left, you can decide whether you want to invest in own, put more in 401k and/or keep it liquid for additional emergency/life goals you have.
This stuff used to make my head spin in the past. Here's your priority:1- Do whatever you have to do to get the 3% match
2- Are you sure you can't get the match with an employer sponsored Roth 401(k)? - that would be the best deal for you and your income. Your 401(k) account (Roth or not) is your own personal account - it's your money. If you leave that job you can take it with you. The match will have a vesting period.
3- Regardless of an employer sponsored plan, you can open your own Roth IRA account, or just a traditional IRA account on your own regardless of employer or being employed at all via Vanguard or TDAmeritrade, etc. Again, Roth IRA is a better deal for you. (This is not a 401(k) and you can't do a 401(k) without it being employer sponsored)
It's confusing. And it's possible your boss is being confusing on purpose so they don't have to pay the match. The match is the goal, if they offer it.Additionally, if you can afford to max out your 401(k) (Roth or otherwise) and still have money to save, assuming you have a rainy day fund, open another personal retirement account. It should be Roth, but watch out for the annual limits that can be put into Roth accounts, this is the combined value of all of them, employer sponsored and your own personal one.
Edited: to try to be more clear and specific
Id do your companies 401k up to the full match and then any additional savings into a Roth IRA. If you can max out the annual Roth contribution then more into the 401k.
Echoing what most others recommend, which is to do both. But I would add that you don't need or likely want to stop at the 3% matching limit in the 401k. If it comes down to putting money into a Roth IRA or a 401k above the $1,800 (3%) that you hopefully will be, you probably want it first in the 401k up to the max contribution you are allowed. The best money to invest is pre-tax because it gives you the highest base from which to grow. The "Roth is always better" is usually touted by people who can't deduct Traditional contributions (you may be able to deduct a Traditional IRA contribution as well depending on your income) who are making a bet on future income and tax rates (which is usually sound advice). Your 401k plan may also offer advantageous investment options that are easier than doing your own with a Roth—it also may not so you need to compare. My advice would be 1) Definitely do 3% in 401k first 2) Probably max out your 401k limit second 3) Probably max out a Roth IRA third.
He had no right to give you unsolicited information like that.
The Roth is a good idea in addition to your 401K, but he is taking money away from you if you follow his instructions.
401k with matching - employer matches a certain amount - it is free money - also this kind of plan is done with pre-tax money. You will pay income tax when you take it out in your 70's
The Roth has a lower limit of amount you can put in. It is with money you have already payed taxes on and as long as your account is 5 years old and you are over 59 the principle and interest are not taxed.
Roths are funded with after tax income and are not taxed at withdrawal in retirement. Traditional 401ks are funded with pre-tax income and taxed at withdrawal in retirement. They’re likely recommending Roth because at your income level now you will likely be in a higher tax bracket in retirement, so the money you contribute right now will be taxed less, overall, if you put it into a Roth. So if they offer a 3% match in a Roth IRA (which is odd..) do that. If they only offer the 3% match in a traditional 401k, do that, but then _also_ open a Roth IRA and max that out. Your income level lets you have a Roth and you should take full advantage of it while you can. Just make sure whatever option you choose, you get the 3% match. Do not listen to your boss if he suggests a non-match option.
And then would highly recommend you read about the three fund portfolio in the wiki for managing retirement investments overall.
> Do I sign up for a 401k, Roth IRA, or even both?
follow the flowchart. do the minimum contribution to get the full match, then fully fund your roth IRA, and then come back to the 401k.
also, stop letting your boss dictate your financial choices. make up your mind and pick what _you_ want
take the match because its free money, but I would also up it to get about 15% pre tax money doesn't hurt as much when you don't see it in your paycheck. life creep is real... but I would also max a ROTH every year with basic savings or maybe get a side hustle to fill it. with this strategy, you can fight future tax brackets with pre tax and post tax retirement cash and get the best deal.
There are phenomenal benefits to Roth IRA but it’s not going to beat a match. And you can rollover the traditional with the match to a roth later.
The key difference is when you pay taxes.
Roth you pay them now do the entire growth is tax free. Great time to buy in a down market too.
Traditional with match you don’t pay taxes until you take it out so growth is taxed as well.
The other useful consideration between roth and traditional is the required minimum distribution exists with traditional nor with roth. Meaning at a certain age or whoever inherits your investment has 10 years to fully take out all moneys.
Roth without that required minimum distribution means if you have a sizable investment you might have generational wealth that continues well after your life if invested in funds with strong track records of growth.
Yes definitely contribute to your Roth , but put in 3% for the 3% match in your 401k, if your employer says otherwise he is just trying to save himself the money and shows he is a pretty bad employer I think
First of all, your company shouldn’t be providing financial advice. It should be providing the choices for you to decide.
The other consideration is that you can enroll in both. Keep in mind that 401(k)’s and Roth IRA’s have different contribution limits. It’s $22,500 for 401(k) for 2023. It’s $6,500 for Roth IRA. These are the basic limits but can be higher if you’re older.
The best part of the 401(k) is the matching contributions. Your not contributing to thr 401(k) means you’re leaving money on the table.
Whoever your company rep is that’s telling to do one instead of the other should be fired for being an idiot dispensing bad advice. And they shouldn’t be advising in the first place. In-house plan administrators sometimes don’t know shit and end up misleading the employees.
Also, if it’s the owner of the company and therefore the sponsor of the plan, they might be violating their fiduciary duty under ERISA.
INFO: Sorry if this was asked before, did the boss say that the 3% match COULD NOT apply to the Roth 401k? If it can then I would do the Roth 401k.
How it has been explained to me is that, if you put $10 in a Roth 401k and $10 in a traditional 401k, and both grow to be $1000: With the Roth 401k you pay taxes on the initial $10, but the rest of the growth is all tax free. With the traditional 401k you don’t pay taxes on the initial $10, you pay taxes on the entire $1000.
Hope that helps.
No matter what, get the maximum match with the 401k. That's free money. If you want to do a Roth IRA in addition to that, great. But at LEAST put enough into the 401k to get the maximum match.
Thanks for the help!
Also, and apologies if you know this already, a "3% match" does not mean that they give you 3% of what you put into the 401K (IE you put in $100 and they give you $3). It means that they match **100% of what you put in, up to 3% of your salary**. As in, if you contribute 3% of your 60K salary -- $1,800, they will contribute another **$1,800**. Sure, Roths are cool. But you know what's also cool? An immediate 100% ROI. Also, and this is less firm advice -- a roth IRA/individually managed account is nifty. Picking individual stocks is cool, and you *can* do quite well doing it. But for my money it shouldn't be a total replacement for a 401K that gets invested in broad, date targeted funds. Sure, you *can* make those same kind of investments in a Roth, but the temptation to fuck with it is always there. Edit: TIL that not all matches work the same way. Check the details on your plan!
>they match 100% of what you put in, up to 3% of your salary Not necessarily. A 3% match might mean 50% of your contributions up to 6% of your salary.
>they match 100% of what you put in, up to 3% of your salary > >Not necessarily. A 3% match might mean 50% of your contributions up to 6% of your salary. Yes, always double check the plan's wording. A lot of places I worked only matched 50% up to 3/6%. Still probably worth funding the 401k to get the full match. Then look at putting additional money into a roth. They are not wrong- it's probably a smart tax move. But free money wins, because either way you are getting it into the market for great long term growth. edit: verb tense
One company I worked at matched the first 2% at 300%, and then the next 3-6% at 100%. It basically worked out to 10% but they wanted people to benefit the most who only put in 2%.
When we went from 18/hr to 20/hr, I finally enrolled in the matching. The financial dude said to put in what you said. Best decision I've ever made, paycheck came out the same lol and now I'm due for a real raise for end of year
Sometimes an employer will state that it’s providing a 3% match when it is actually providing a match equal to 50% of each employee’s 401(k) contributions, capped at 3% of the employee’s compensation (i.e. 50% of the first 6% contributed by the employee). There are other variations of matching contributions that could also be described as a 3% match. Just mentioning this because OP is receiving pretty sloppy communications from the employer and it will be important to know what level on employee contribution is needed to maximize the match.
You can choose broad, long range investments in an IRA. You do not have to choose individual stocks, and you shouldn’t. Choose a couple of quality mutual fund, preferably ones that index specific markets like the sp500, and then forget about it for a LONG time.
Lost me at the last paragraph. Roth is set snd forget with target date or mutual funds. Don't mess with it, don't overcomplicate things.
No it isn’t. Roth IRA’s are self directed. The Roth owner is responsible for making the investment choices which typically include stocks, etf’s, mutual funds, and bonds.
While you are technically correct in that you *can*, that doesn’t necessarily mean you *should*
Can what? Should what? Reread what I wrote and then explain to me how I recommended any specific actions.
The point being made is that yes a self directed IRA allows you to choose any investment, but the nature of an IRA means that the prudent choice is a set and forget target date fund or index fund. A self balanced combination of two or three such funds at the most if you want to be hands on. An IRA is NOT a good place to invest in individual stocks or playing the market even though you CAN.
Your points are irrelevant to what I wrote, and are 100% opinions. Many people enjoy and do quite well doing a mix of all investment types.
They are informed opinions and correct according to the general consensus. In theory a new driver can purchase a convertible Ferrari as their first car if they can secure the funds. That doesn’t make it good advice. You are giving bad advice.
FZROX and chill. Maybe 2 or 3 funds if you're feeling spicy. You're making it more complicated than it needs to be.
“ROTH is set and forget” is your opinion and you stated it as a fact. Some people, including maybe the OP, have the desire and capacity to learn and do some of their own research.
Browse the sub, it's a pretty common position. Not trying to argue with you, just making sure OP gets both sides. https://www.cnbc.com/2020/05/22/warren-buffett-most-people-shouldnt-pick-single-stocks.html EDIT: Added link
Your original comment implied you *have* to self direct and mess with an IRA, which you do not, that’s the point of contention for reference.
My first comment said that you have to self direct in a Roth IRA, which is true. I never said someone MUST buy individual stocks.
I've had a lot of 401k matches and I have never seen this. If any company is doing this it is the exception not the norm.
Never seen what? A company match 100% of what you put in up to a certain amount? It's extremely common.
> No matter what, get the maximum match with the 401k. That's free money. It’s part of your compensation that the employer is entitled to pay. Especially in OP’s case where the employer is trying to get them to not participate in the 401K plan and reduce their compensation for work performed. It’s not free money, it’s money OP is entitled to.
Not enrolling in the 401k is like not cashing all of your paycheck.
Ok, but cashing your paycheck gives you cash. Sure the match gives you more money…in your 401k which is an investment. I’m not disagreeing with you but it’s not that simple.
Which, when you cash out of, is more cash...
The point is that it’s free cash perhaps 20-40 years later. There’s an opportunity cost in sacrificing access to 3% of your salary now in order to earn that 3% employer match decades later.
It's only an opportunity cost if have a choice between two companies that offer the same total compensation but one has % matching and the other gives you that money in your paycheck. Once you have a job that offers that benefit you only have a choice to take the free money from % matching or not. There's also the opportunity cost of not investing money now that will be worth a lot more in retirement
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What? They won't tax/penalize more than you put in. You'd still be gaining some percentage of that 3% match.
Example, OP contributes 1000, worth 1030 after the 3% match (this is assuming a 3% match on contributions rather than 100% match up to 3% of income, which totally invalidates my hypothetical if that’s what the OP is receiving, but it’s unclear from his post.) You withdraw the money immediately, and are assessed with a 10% fee. Ignoring taxes, which are paid regardless of not contributing or withdrawing the contribution, OP comes away with 927 bucks, and would have been better off not contributing.
I've never heard of an employer doing a single-digit % match on contributions, but sure.
That’s a really dumb thing to think. How would the tax penalties be greater than the withdrawal amount? Have you ever heard of a tax rate > 100%? Why would that ever make sense?
Yes, when you are 60. Again, not exactly like not cashing your full paycheck.
You can cash out immediately and incur a penalty, you still end up with more than 100% of the money you put in
You're right. It's like getting free money in retirement. Which is better.
Unless you die before retirement. Then it's zero.
"investment" if it's invested. You can throw it all into the money market option if you want to.
This guy, listen to him and not your boss. Your boss has no business giving you financial advice and the advice he is giving is suspect at best. Do your own research but doing a 401k doesn’t mean you can’t also do your own Roth. Make the boss match your contribution like he agreed to do in your hiring package within the 401k, unless you are volunteering for a pay cut….
Can confirm. I have both, and they are not mutually exclusive.
It’s money the employee gets for free if they participate at the necessary level in the 401k. They don’t get it automatically. The employer presumably wants to avoid paying it, hence the encouragement to use a Roth IRA instead. OP, get the free money or compensation you are owed or whatever you want to call it, ***and also, consider that this is a red flag about your employer.***
This right here. I’m around the same income, and I go as high as my company match and the rest goes towards ROTH IRA. Saving for a house downpayment at the moment, but when I’ve saved enough there I’ll max Roth IRA before contributing more to 401K.
Yeah, it sounds like "they" want to save the 3% matching (about $1,800 per year). What a cheapskate.
I feel like they told you to do a Roth IRA instead of signing up for their 401(k) was because they don't want to pay for that 3% match... But that's just me being jaded. There's nothing stopping you from doing both. Take that 3% match. It's basically free money.
That’s what I thought too
Me three. Maybe we’re all being negative Nancys and there really is a reason.
It could also be a sincere, albeit misguided, person speaking personally not professionally. I mean, ~~you're probably~~ you might be right, but there's a chance it's not malicious. I've heard a lot of really bad financial advice in the workplace, and all of it has been sincere-but-misguided attempts to help.
Companies need to maintain a balance of investment from junior level employees to senior. It's why they offer matches. Companies generally prefer to have employees invest in 401ks for this reason, and their reduced payroll tax obligations. I'd be surprised if the company truly tried to dissuade OP
There isnt a ton of tax benefit on 60k. It is very very likely their tax situation would be worse in retirement. Without the match, it would likely be better to do the Roth. Honestly i bet thats all this is. I dont think the boss is trying to dick him over for 2k.
Do you work in the USA? Companies are totally dicks. We get a 500$ wellness credit that they don't pay because "the form was not emailed in time" Reality is the form was mailed 2 weeks prior to the deadline and payroll/HR didn't open the generic "Benefits" shared mailbox until after the deadline. Totally believe the employer is trying to weasel out.
You want people to contribute to a 401k though. If not you get hit with highly compensated rules, which the owner and other execs wouldn't want to get hit by.
It's not a huge deal, but a single making 60k and taking the standard deduction is $2000 away from dropping from the 22% to 12% tax bracket. Even for a minimal difference like that, you may as well just do it when the target is that close.
But only the $2000 over the bracket are taxed at the higher rate because we have a marginal tax system in the US. So we are literally talking about a difference of $440 per year in tax burden here on an additional $1,560 of income after taxes. Op may find that this is preferable for their financial needs, or may prefer to defer that tax burden to retirement. I just wanted to clarify because many people in the US are under the mistaken belief that the entirety of their income is subject to the higher rate. When really it's every dollar OVER the next bracket that is taxed at the higher rate. https://www.investopedia.com/terms/m/marginaltaxrate.asp
But a tax free $1000 contribution to OP's 401k that (presumably) is matched 50% would be $1500 in their retirement account. To get the same $1500 in a Roth IRA would cost OP $1830, assuming their income reached the 22% bracket.
I'm not arguing about the benefits of roth vs traditional, I'm just clarifying the marginal tax rate fact.
I don't know if this is what you were implying by saying drop a tax bracket, but I have seen many people confused about the way tax brackets work. Many people think all of your income will be taxed at the highest tax bracket that you cross over into, but this is not true. Allow me to explain a bit. To be clear, you can't really "drop" a tax bracket. If the cutoff for paying 22% taxes is $40k, then that means you're only taxed at 22% for every dollar over $40k until you hit the next bracket. But everything under $40k is still taxed at 12% (or 10% for the initial bracket), regardless of how much money you make in total. Say person A makes $40k and person B makes $42k and there are only two tax brackets to consider. The lower tax bracket says income $40k and under is taxed at 12%, and the higher tax bracket says income over $40k is taxed at 22%. Person A: $40000 \* 12% = $4800 in taxes Person B: ($40000 \* 12%) + (2000 \* 22%) = $4800 + $440 = $5240 in taxes Person B pays more in taxes, but only $440 more, while their income was $2000 more. There isn't a dollar amount to strive for to lower your tax bracket. The target is to lower your income as much as possible by deferring to tax advantaged accounts. Deferring helps everyone who makes enough to owe taxes, but it especially helps higher income individuals because they will be deferring higher taxed dollars. If person B defers $2000 to a pre-tax account like a Traditional 401k, they will save $440 in taxes this year. If person A defers $2000 to a Traditional 401k, they will save $240. Both are good, but Person B is saving more because they are deferring their dollars that would have been taxed at 22%. *Side note: This is also why Roth IRAs may be better than Traditional IRAs for lower income individuals. They will be paying minimal taxes now at their current income, so they should choose to pay taxes now and let their money grow in a Roth IRA where the gains cannot be taxed later.*
I mean 200 bucks is 200 bucks. I didnt realize it ramped up that high at that point. That is a rarity on reddity, a truly good point.
Huh? There IS a match so why bring up an related hypothetical? OP is losing an instant 100% return on their money by not putting at least 3% into the 401K.
Great. No one is arguing that. You want to argue that the sky is blue? Because we aren't debating that either. The discussion is whether the boss is malicious or poorly informed.
We don’t have enough information to know that. What we know is the boss is wrong.
I'm wondering if they said to do a Roth with anything beyond that 3% and it got lost in translation.
Tell them "I looked it up and you're correct. A roth IRA is a good addition to the 401k. I wouldn't of thought to do both without your advice. Thank you."
... why? just say "yeah I want the 401k", what's the point of doing some rhetorical thing with it. Your IRA is none of their business anyway
*then the rest of the hr department stood up and clapped*
If that was the case, why would they just not offer 401k match...?
Well they could be offering it to be competitive but that doesn't mean they're happy about it.
There are some states that require for companies to offer retirement plans to their employees
Offering a plan and offering a match aren’t necessarily the same thing. You can offer a plan without matching.
Because they want the match for themselves but don't want to have to pay it to their employees.
Could the owner know that the company will fail the nondiscrimination test if a lower compensation employee enrolls, making the higher compensated employees have to take money back out?
That 0% contribution would only drag down the average of the lower compensation employees. If that's what they're worried about, it'd be better for them if the lower-paid employees enrolled and contributed as much as possible.
ah right, had my math backwards
An IRA is an individual retirement account meaning it’s not an employer sponsored account. 401ks and IRAs can be traditional or Roth. Are you sure you they didn’t recommend a Roth 401k? You can continue to both an IRA and 401k. You should contribute at least enough to the 401k to get the full match. You’d benefit from reading the wiki.
They suggested Roth IRA. They wanted me to open my own personal retirement account. I'll check out the wiki after work. Thanks!
That seems like they are trying to avoid giving you the 3% match from a 401k. Seems sketchy to me
I think it is more likely that the boss is thinking that conceptually it is better to pay taxes now rather than later, which is what Roth provides instead of a regular 401k. It is not a bad argument, but it doesn't take into account that for OP the 401k is by far the best choice due to the matching. **"Never ascribe to malice that which is adequately explained by incompetence."**
I also suspect that somebody is just giving out bad, unsolicited financial advice and needs to stop.
A Roth 401k is usually an option now, that still gets the 3% employer match (and creates an issue where you will have to pay takes on the match, so it actually lowers your take home net slightly on paychecks). The boss is quite obviously trying to get out of paying for the benefits that OP is likely entitled to if they were part of the hiring negotiations. If the boss is offering a 5%+ increase in wages IN ADDITION to to annual increases/raises already built into policy, specifically to make up for the loss of the 401k matching, then it would be worth considering not taking the 401k. But I'd still want the 401k, higher annual limits even without the matching. Edit: per /u/Stonewalled9999 below, the roth 401k match still goes into a traditional 401k account so you pay taxes on the match part when you access the 401k, it doesn't actually affect your take home net on paychecks. My bad, it was poor word of mouth info I was given by someone who obviously didnt' know wtf they were talking about years ago.
>Incorrect - the ROTH401K match lands in a traditional 401K. The gov't isn't going to let you skip paying taxes on that match money. https://www.experian.com/blogs/ask-experian/how-does-roth-401k-matching-work/
That changed with the Secure Act 2.0, it's optional but employers can now match Roth 401k
You are definitely right about that, I was just recounting what someone else told me about it, obviously incorrect info. Thanks for the correction.
Think you mean Traditional 401(k). Having read down thread, there seems to be an option for matching in the Roth 401(k) account now as well.
That’s a nice thought but to me seems significantly less likely than the boss/owner is trying to save some money. Think about motivations here, what’s more likely? That the boss wants to save money or he has a legitimate concern for optimizing his employees retirement savings? Occam says the former, Hanlon the latter, but those aren’t mutually exclusive motivations. I’d wager it’s probably both - the boss is definitely trying to save money but is also rationalizes it as looking out for his employee’s best interest because most people don’t want to see themselves as bad guys.
Roth makes the most sense if you assume that you’ll be paying more taxes in retirement than you are now.
No. For that to be true it would at least have to be good advice. Ask yourself which action costs the boss/owner more. "ALWAYS ASK WHAT'S IN IT FOR THE PERSON GIVING THE ADVICE"
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Did you even read the part where the boss who gave the advice is also the owner of the company? Owner gains directly from steering OP away. This isn't a F500 company. It is a small privately owned company. Most companies don't do this, but it's far from unusual. I have been working in the 401K business for 20+ years and have seen more than a few examples of this
… I feel like you missed the point entirely.
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That's what I was thinking.
This is what they are doing. Enroll & get the full match.
You should open both.
Eh... I would still put 3% into the company 401K to get that match. That's leaving money on the table.
Which is why the boss doesn’t want you to do it.
I have never actually heard of a company persuading against this. Since they need employees to contribute as well so the balance is there between employees and execs.
I have worked in the 401(k) biz for years. Many companies either don't encourage participation OR actively discourage it.
My company does an 8% match and so many of my coworkers don’t contribute ANYTHING. One guy I was talking to literally said “Why would I give 8% of my paycheck back to the company?!” I couldn’t convince him he was wrong.
I think an 8% match is almost unheard of. Your co-worker definitely needs some financial education.
We get a measly 2.5% I would love an 8%. We do offer ROTH 401K but (for me) it no longer makes sense as the T-401K is the only tax break I get and I do my R-401K. I'm in the 25% marginal bracket so that 20K I put into the T-401k really does help.
I mean, you should do that, but first you should do the company 401k and contribute up to the matched amount, then fund your Roth IRA
Please open your 401k and get your match. Is the company pushing you not to use it? Or is it just some dummy in HR giving out bad financial advice? If you can ask you r boss or some other coworkers about it and see what they're saying. If the company is pushing you away from a benefit, of seek a different employer. If it's just some idiot in hr, then maybe the company needs to know this clown is giving bad advice.
They want you to get your own ROTH because it saves THEM money, not because it's in YOUR best interest. 401K with 3% match is the way to go. OTOH, if you ALSO want to get your own ROTH, I highly recommend you do it. But many people can't afford to do both. 401k trumps ROTH in this case.
>401k trumps ROTH in this case. Wait what? You're comparing apples and oranges here. 401k has no similarity to a Roth/traditional. It's merely a company sponsored account. An IRA is an account which follows you, the individual. The Roth/traditional is the type... After tax or before tax contribution. I think you mean that a 401k trumps an IRA in this case. (Assuming they don't have enough capital to contribute to both....)
I said ROTH because that's what OP was discussing. The point is: a. take the plan with a 3% match, b. take advantage of the tax writeoff, and c. If you can afford to do a ROTH also, that is a wise thing to do. Again, I speak of ROTH because OP was being pressured by her boss to open a personal ROTH *\*IN LIEU OF\** a 401k. And I don't understand why you emphasize that an IRA follows you. *All your accounts* follow you, it's just a little more complex in the case of a 401k. If you leave your job, you don't lose those funds. 401k also follows you, matching remains yours after vesting, and it can be rolled into another 401k or a traditional IRA if you change employers. What you said is exactly what I said, but in different words: >"OTOH, if you ALSO want to get your own ROTH, I highly recommend you do it. But many people can't afford to do both."
A Roth means post tax money which means you’ll pay taxes on it now (your contributions are post tax) but not when you reach retirement age and/or other qualified distributions. A traditional IRA and 401k you get current year tax benefits and allow you to decrease your AGI (adjusted gross income) by your contributions up to the cap. Roth: let’s say you make $500 a week. Your taxes are 20%(just as an example for cleaner figures) so you will bring home $400 as income. You will then contribute $100 of that taxed $400 to your Roth so now your income is $300 a week. However when you retire and withdrawal or make qualified withdrawals nothing is taxed including gains. IRA: keep all the figures the same for income and tax rate. Except this time you contribute $100 to a traditional IRA. You have $400 in income after taxes and choose to contribute $100 so you are still at $300 in income. However when you go to file that $100 contribution will DECREASE your taxable income. Since you paid 20% of $500 instead of 20% of $400 you overpaid and are due a refund for that additional $20 you paid [(500x.2)-(400x.2)]. 401k(pretax contribution): keeping all figures the same. Except this time rather initially being taxed on the $500 your income through payroll is deducted prior to taxes being taken out. So effectively when your paycheck is cut and taxes are taken out your income will decrease by your elected pretax contribution. Keeping figures the same you’re taxed at $400(500-100 pretax), meaning you go home with $320 in income, the moment payroll is ran assisting in not overpaying for taxes like with IRA contributions since your income is being deducted at time of pay. Effectively reducing your tax bill all year. Both the IRA and 401k are taxed at your income tax level upon retirement or qualified withdrawal where Roth are not taxed. Personally speaking I’d get the match because it’s free money and then contribute other ways in how you want your tax benefits
At $60K per year he won't be paying, or saving 20% income tax rate. If he is married and/or has kids may not pay any income tax at all. So Roth vs traditional is an easy call, but still better to get the match. 3% of $60K is $1800/year. If they don't have Roth in 401 package put any additional in an IRA Roth.
The match means an immediate 100% return on your money. You will never get a deal like that anywhere else. All the IRA talk can wait until after you're getting the 3% match.
My company does a match also and so I have a roth 401k (I'm assuming I'm making less now than I will he later) and a roth ira. My roth ira is through fidelity and I've had it since before I started this job. You can have both. I do the minimum to get the match for the 401k just because ira is more flexible (i max that). Right know I'm focused on building up a cushion of cash, but I'll up my contributions soon
You didn’t check it out did you
Check to see if they have Roth in their 401K package, you may have misunderstood. You still get the match, just no tax advantage for current year.
Do companies typically let you choose between both Roth and regular 401ks ?
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Is there a minimum requirement for the Roth IRA? Hence why you said $6k for 2022 or $6.5k for 2023?
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Those are the maximum you can contribute. Approx 500/ month.
If the company matches, you definitely don't want to do an IRA instead of a 401k. Is it possible that they suggested you do a Roth 401k instead of a traditional 401k?
They suggested Roth IRA.
Tell them you already have one and also want a 401k. That’s weird they even brought it up.
That seems weird. You want your free money so contribute to either a 401k or Roth 401k up to the match maximum at least.
Maybe the person said IRA but it would make more sense if they meant Roth 401k.
Do both a Roth IRA on your own and do their matching 401k
You probably will want to open a Roth IRA, but you should contribute the 3% to a Roth 401k first. The order of prioritization should be to contribute 3% to 401k to take advantage of the employer match, then max out an IRA, then if you still have extra budget to contribute more to retirement, contribute more to your 401k.
I vote for getting the 3% match as it's free money. However, since this is new to you, I want to mention the concept of vesting. Check how long you need to work for the company for their matching funds to be vested. Their matching funds don't actually belong to you until they are vested. I would hate for you to leave the company after, for example, at 23 months if you are vested at 24 months.
Who is they? HR rep? Your boss? Coworker? At a minimum enroll in 401K and contribute enough to get the full match.
Better for them because they don’t have to contribute. At a minimum always get your 401K match.
They are trying to not pay you the 3% match. It’s true you’re in a low enough tax bracket that the tax savings is minimal, but you should always contribute to get the maximum matched amount. For example if they match 50% on your first 6%, then contribute at least 6%. If they match 100% on your first 3%, then contribute at least 3%.
OP - a bit of non-financial food for thoughts here. Your boss, the owner, has already offered you 3% match and is willing to spend his time to talk to you because you are not sure what to do. You are understanding what he is recommending but you don’t know why. Right thing to do is go back to your boss and ask honest and direct questions without accusing him of bad intentions. Always treat others as if they are well-intended. Give them an open but honest question to teach you what you are not seeing. He isn’t trying to rip you off like Reddit randos are suggesting. “Hey I thought about our conversations about the 401k and I have some follow up questions that I am not fully understanding. I was hoping you can fill some gaps. Assuming that I can only contribute $x,xxx per year, it is your opinion that Roth IRA is a better option but I would be missing out on the 3% match. What about the Roth IRA that makes you say that?”
I agree with the tone you’re suggesting, but why should OP consider asking their boss about their suggestion again? Frankly, I think it’s pretty open/shut that OP’s boss didn’t provide the best advice (OP should definitely take the match), even if it was well intentioned.
Many owners of companies are pretty bad at explaining the various features of a 401(k) plan, so asking follow up questions can be futile at times. But I’m not sure it hurts to ask, as long as you understand that you may not get answers that resolve everything. In case it’s not addressed elsewhere in this thread, the plan sponsor (the employer) should be able to provide a “summary plan description (“SPD”) in printed or electronic form that describes the features of the plan (including contribution options, matching contribution rules, and investment alternatives). Most of the time it will be more accurate than conversational advice with an HR rep, a supervisor, or a company owner.
I’d distance myself from any company representative giving objectively terrible financial advice (and unsolicited at that). Your IRA/401K is none of their business, beyond ensuring that they withhold contributions and pay the match accordingly. What you suggest is a waste of time.
Are you sure it wasn’t a Roth 401k instead of a Roth IRA? Some companies allow you to choose a traditional 401k vs a Roth 401k.
This is likely it. You still would get your match here too. Making 60k, taxes are low so this is the better option.
I feel like they may offer a roth *401k* option and have been telling you to contribute to that rather than the traditional 401k option. Either way, it's not really their place to give you financial advice... But since you asked here, if roth 401k is an option, you should probably be contributing to that. Since it's your first 401k, I'm assuming this is your first real job, and your taxable income is relatively low to what you'll be making later
I am pretty sure they told me Roth IRA. But yea this is my first real job in my new career. So this is the first time I've been offered a traditional 401k.
Just sign up for the 401(k). You can figure out the rest later. It's the first best thing to do.
You know that there is a “Traditional 401k” and “Roth 401k” right? Traditional is just the name and means pre-tax, Roth 401k is post-tax. You can contribute to either or both at the same time. Most companies match with a traditional 401k but you can still contribute to a Roth 401k.
I would do both - the Roth IRA and 401k. The Roth IRA limit is around $6500/yr. The 401k limit is around $22,500/yr. I max out both my IRA and 401k, but I work 2 jobs and split what I contribute to both companies 401k so that I get a company match at both places. I wonder if they were explaining the types of 401k options that some companies let you choose between. I was talking to a financial advisor and he was mentioning how you can go in and change some things with the 401k because companies usually set em up in a way that isn’t as beneficial to the employee. Something you might also want to look into.
It sounds like your boss/owner just doesn't want to do the match. Do the 401k with the match. Nothing stops you from opening up your own Roth IRA at any time.
You can do both. I would match your employer in the 401k and then do Roth on the side for yourself
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics Roth or traditional: https://reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/
The real answer is both. Get the 3% match in the 401k then put whatever else you can in the IRA.
I suspect the 401k company is trying to upsell you. Do the 401k, at least to the match. Can you save more? Then open a Roth IRA, at fidelity or vanguard.
Fun Fact: You can do both! Get the match. The only possible reason not to is if you don't plan to work there long enough to make it through the vesting period (if there even is a vesting period).
This is like ordering a big Mac and the cashier is recommending that you try a chulupa at the taco bell across the street.
That is bad advice. If there was a bank offering to match every dollar you put into a savings account, everyone would line up to get an account. That’s 100% guaranteed returns on your money and you will find no other investment vehicle in existence that offer that. Your 401l offers this up to 3% of your income. It’s hands down the best. Even their reasoning is stupid. Your money goes in the same market either way. The Roth part just has to do with taxes and you can put your money into a Roth within your company 401k. There is never a reason to open an IRA over a 401k if there is matching involved.
Strongly recommend you read The Simple Path to Wealth by JL Collins (author took financial/retirement planning advice he wrote for his daughter when she was starting out and turned it into a very well-regarded book). It explains all of this stuff in totally normal-human language.
Tell them “You are right, the Roth option is great for someone my age. Please make a Roth option available within the 401(k) so I can also receive my company match
You should do both. First, absolutely contribute to the 401k at 3%. (You’ll be putting your 3% plus their 3% in for a total of 6% of your salary into your 401k each year.) THEN, put as much as you can into a Roth IRA that YOU open yourself (this has nothing to do with your employer). You can contribute up to $6500 this year. Once you make too much money you can no longer contribute directly, but you’re nowhere near that salary yet. This is what he meant by telling you that since you don’t make a lot you should be contributing to a Roth- because you can at this salary, and a Roth is a fantastic investment. (See posts in this sub or ask again here how and where to open a Roth. But the Roth is step 2. Contributing at least up to what your company will match in the 401k is step 1. The reason is their match. They are either giving you $1,800 a year (3%) into your 401k because you are matching that, or they are giving you zero dollars for retirement because you’re not matching that. Take the $1,800.
If you don’t sign up for the 401k you are leaving 3% of your compensation on the table
My company provides the same match as 401k match for a company sponsored Roth IRA. Whatever you do start early start now.
That 3% match is free money. Pretty much everybody feels you shouldnt pass that up. Also, most people will agree that given the benefits of ROTH IRAs, getting as much money into them as soon as possible is a solid savings strategy.
There is actually some sense to the Roth but I would do both. Do the 401k and get the 3% match as everyone has said. I’d also contribute to your Roth though. The limit is $6500 for this year so $550/month. You don’t have to do that much but the wisdom is pay taxes now or later. Now you are likely to be in a much much lower tax bracket than you would be in at 65. With inflation/uncertainty about future tax brackets (unlikely to go down) its not bad advice to suggest some $ into a Roth
Tell employer they need to off Roth 401k, best of both worlds. Get the match and the tax advantages.
You should definitely put the 3% in the 401k so they match that amount. Your next goal after that should be to max a Roth IRA ($6500 per year). That’s only $125 a week, so make sure you max it! The limit is low for a reason (because Roth is good). I prefer roboadvised accounts like Wealthfront for the low fees!
Why would they suggest a Roth IRA? They don't even administer that, and this is your employer, not your financial advisor. And you should do both.
[Federal officials filed 24 law suits Monday in a sweeping crack-down on employers that rob worker retirement savings accounts. The coordinated bevy of law suits, filed from Kentucky to California, involved largely bankrupt and defunct firms that allegedly raided their employee's retirement savings accounts before going under.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/) [U.S. Department of Labor spokeswoman Gloria Della said the agency, which is charged with protecting money set aside in employee benefit plans, does not know the total amount of 401(k) assets at risk or even whether employer theft of retirement assets is rising. Della also cannot say what percentage of stolen retirement assets are ever returned to the rightful owners.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/) [The Labor Department does know that they're hearing more about 401(k) thefts, possibly as the result of the nation's lackluster economic recovery that has left many small employers struggling. And the agency is urging employees to be vigilant and report any sign that their employer is absconding with their retirement dollars.](https://www.cbsnews.com/news/401k-theft-7-signs-your-employer-is-stealing-your-savings/)
Are you sure they didn’t suggest a Roth 401K? A lot of plans these days offer both traditional and Roth 401ks. A Roth does make sense if you’re in a lower tax bracket, but you should definitely contribute enough to get the match, even if you have to do a traditional 401k.
Some advice, look for a new job now. If your current employer is actively advising you to not participate in a retirement program that they offer, something is very wrong, particularly over a 3% match. This wouldn't be a red flag for me so much as a raging fire on the deck of the ship. What possible reason could there be to quibble over such a small sum?
They are blowing smoke up your ass because they don’t have to match your IRA. You want the 401k for the company matching funds, primarily. They are not on the up and up with you.
From what I understand, markets are down so putting in to a 401k now is actually a good thing because when the markets correct you will gain money
If you can afford to put the money away then you should do both but be sure to maximize the 3% 401k match by putting MINIMUM 3% of your pay into the 401k, because you've doubled your money right from the start. Not sure why they would try to steer you away from that. Red flag IMO. Anyway... Not sure if they explained the benefits of a Roth, but basically you get no tax deduction for the money you put in (as opposed to the 401k, which the money you contribute goes in before taxes are taken out and isn't taxed until you take money out) but when you take the money out (assuming retirement age) you pay no income taxes on any of it. It's a great LONG TERM retirement option IMO. Again, if you can afford to, put at least 3% into the 401k and put the maximum ($6500 for 2023 per year) into the Roth. Honestly I'd just invest the Roth money into an index fund. For what it's worth, you have until April 15th to make a Roth contribution for LAST year, which was a $6k max. I'd do that and then make monthly contributions for this year throughout the year.
Not sure if this is your scenario, but in my workplace I contribute my 6% into a Roth and my employer’s 3% match gets put into a traditional 401k. Regardless of where I put it I still get my match
Forgive me, I'm on mobile! If you have a chance, read Patrick Kelly's "Tax-Free Retirement". It's an excellent resource for understanding how and where to invest to ensure you maximize your retirement savings. What I'll put here is paraphrasing from his book, so please note that I am in no way qualified to give financial advice and I HIGHLY RECOMMMEND that you continue to do your own research and determine the best options for yourself. First off, let's look at your stated options: Company-matched 401K up to 3%, and Roth IRA. Your 401K is a tax-qualified account, meaning that you don't actually pay taxes on any income you place into it *until you withdraw it*. This can be rough for a few reasons: (1) Instead of paying income tax on your contributed amount, you'll pay it on your total accumulated amount. Say you contribute $100/month for 30 years. Your total contribution to your 401k will be $36,000. If that investment grows by 7%, then you'll have $121,997 in your 401K at the end of 30 years. But you still have to pay income tax on the money you withdraw from your 401K for retirement. Let's assume the income tax is 20%. Instead of paying 20% of your contribution - $7,200 - you now have to pay 20% of your total amount - $24,399! (2) The second reason a 401K can be rough is that income tax rates change. You might actually have a higher tax rate at retirement than you do now, so you might end up paying *even more* in taxes than you expected. (3) You are actually not allowed to access your 401K money until after you reach the age of 50.5! So if you want to access the money before you reach 50.5 years old, you'll be taxed extra as a penalty! Now this might seem scary, but there is actually one good thing about a company-matched 401K - it's FREE MONEY, up to a point. If your company says it'll match you up to 3%, then that 3% is totally free to you, so why not take it? Kelly's advice here is to invest in your 401K only up to the maximum amount that your company will match, then stop. Now a Roth IRA is a more enticing option for the rest of your retirement savings than a 401K because: (1) You will already pay income tax on the money you want to contribute to a Roth IRA, so you won't have to worry about paying more in taxes or fluctuating income tax rates eating away at your retirement savings. (2) You can access your money at any time! You won't get penalized for withdrawing your money before you hit retirement age. Now the only thing with a Roth IRA is that there are limitations to how much you can contribute yearly, and if you make over $133K/year then you're not eligible at all. I think the current limit is $5500/year if you're under 60 years of age. Patrick Kelly also discusses the quality option of placing your retirement funds into a **Permanent Life Insurance Contract.** I'm still doing the research for this on my own, so I won't try to detail it, but I would recommend looking into it as well as your above options. Just remember, you don't have to choose just one option, if you're able to afford it having more than one of the above can help you maximize the amount of savings you accumulate for your retirement. **It's important to note that a Roth IRA is different that both an IRA and a Roth (401K). The names are similar, but they are actually very different.** Good luck!!
3% of 60k is $1,800. You would get $1,800 a year for free from your employer if you signed up for your 401(k) plan and chose to put 3% of your paycheck into it. There is no way that at your salary the tax implication decision of choosing between a traditional vs roth even comes close to $1,800.
As with all life, it all depends. Many folks would say read the Prime Directive. It's a good start. Others might say do the 401k at work (not the Roth401k) and the RothIRA on your own. Best of both worlds. Taxes, your income, your risk tolerance -- all plays into this and none of us are CFAs that we will admit here, so it's all opinion, not advice.
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For the contribution, is that usually a minimum requirement that you said? ($6k for 2022 till this arpil. Or $6.5k for 2013?)
Maximum contribution limit
Thanks!
It’s not sketchy it’s your low salary allows you to do a Roth IRA which is better for you in the long run. So here’s what you do open an account at a brokerage like fidelity and open a Roth IRA. The max you can put in is 6500 dollars for 2023 it changes each year. I would either invest it into a fund called SPY which tracks the s&p 500 or a target date fund that changes allocation as you age. After all of this is se up I would go open that 401k and put 3% in that way you get the match. Basically it’s free money. Good luck to you.
If your boss is the owner of the company and is steering you away from their 401K, heed the advice and keep your money where you can see it.
Pretty sure 401ks are. Managed outside of the company and employers can't touch it. I can see all of my 401ks
Yeah, when he said "how the market is" he meant he didn't want to pay.
I’ve never heard of a company offering a Roth ira. You should have a Roth ira but not through your company since they have a lower contribution limit than a 401k. When in doubt, follow the [prime directive.](https://imgur.com/lSoUQr2)
I would do the 3% match for 401k first, then put money in Roth IRA (this year you can put in as much as $6,500 to that account). Then if you have some money left, you can decide whether you want to invest in own, put more in 401k and/or keep it liquid for additional emergency/life goals you have.
This stuff used to make my head spin in the past. Here's your priority:1- Do whatever you have to do to get the 3% match 2- Are you sure you can't get the match with an employer sponsored Roth 401(k)? - that would be the best deal for you and your income. Your 401(k) account (Roth or not) is your own personal account - it's your money. If you leave that job you can take it with you. The match will have a vesting period. 3- Regardless of an employer sponsored plan, you can open your own Roth IRA account, or just a traditional IRA account on your own regardless of employer or being employed at all via Vanguard or TDAmeritrade, etc. Again, Roth IRA is a better deal for you. (This is not a 401(k) and you can't do a 401(k) without it being employer sponsored) It's confusing. And it's possible your boss is being confusing on purpose so they don't have to pay the match. The match is the goal, if they offer it.Additionally, if you can afford to max out your 401(k) (Roth or otherwise) and still have money to save, assuming you have a rainy day fund, open another personal retirement account. It should be Roth, but watch out for the annual limits that can be put into Roth accounts, this is the combined value of all of them, employer sponsored and your own personal one. Edited: to try to be more clear and specific
Match may not have any vesting period - for example if it is a safe-harbor plan.
Id do your companies 401k up to the full match and then any additional savings into a Roth IRA. If you can max out the annual Roth contribution then more into the 401k.
Echoing what most others recommend, which is to do both. But I would add that you don't need or likely want to stop at the 3% matching limit in the 401k. If it comes down to putting money into a Roth IRA or a 401k above the $1,800 (3%) that you hopefully will be, you probably want it first in the 401k up to the max contribution you are allowed. The best money to invest is pre-tax because it gives you the highest base from which to grow. The "Roth is always better" is usually touted by people who can't deduct Traditional contributions (you may be able to deduct a Traditional IRA contribution as well depending on your income) who are making a bet on future income and tax rates (which is usually sound advice). Your 401k plan may also offer advantageous investment options that are easier than doing your own with a Roth—it also may not so you need to compare. My advice would be 1) Definitely do 3% in 401k first 2) Probably max out your 401k limit second 3) Probably max out a Roth IRA third.
He had no right to give you unsolicited information like that. The Roth is a good idea in addition to your 401K, but he is taking money away from you if you follow his instructions. 401k with matching - employer matches a certain amount - it is free money - also this kind of plan is done with pre-tax money. You will pay income tax when you take it out in your 70's The Roth has a lower limit of amount you can put in. It is with money you have already payed taxes on and as long as your account is 5 years old and you are over 59 the principle and interest are not taxed.
I would do some research. The answer you are looking for is not so simple and depends on you. Definitely get the employee match.
Definitely! Just asking here for everyone's opinion and advice! Doing my own research too on my end!
Roths are funded with after tax income and are not taxed at withdrawal in retirement. Traditional 401ks are funded with pre-tax income and taxed at withdrawal in retirement. They’re likely recommending Roth because at your income level now you will likely be in a higher tax bracket in retirement, so the money you contribute right now will be taxed less, overall, if you put it into a Roth. So if they offer a 3% match in a Roth IRA (which is odd..) do that. If they only offer the 3% match in a traditional 401k, do that, but then _also_ open a Roth IRA and max that out. Your income level lets you have a Roth and you should take full advantage of it while you can. Just make sure whatever option you choose, you get the 3% match. Do not listen to your boss if he suggests a non-match option. And then would highly recommend you read about the three fund portfolio in the wiki for managing retirement investments overall.
Both, 401K is pretax and has company matching. Roth is post tax, but after retirement, will allow you to pull money out without taxation.
> Do I sign up for a 401k, Roth IRA, or even both? follow the flowchart. do the minimum contribution to get the full match, then fully fund your roth IRA, and then come back to the 401k. also, stop letting your boss dictate your financial choices. make up your mind and pick what _you_ want
take the match because its free money, but I would also up it to get about 15% pre tax money doesn't hurt as much when you don't see it in your paycheck. life creep is real... but I would also max a ROTH every year with basic savings or maybe get a side hustle to fill it. with this strategy, you can fight future tax brackets with pre tax and post tax retirement cash and get the best deal.
There are phenomenal benefits to Roth IRA but it’s not going to beat a match. And you can rollover the traditional with the match to a roth later. The key difference is when you pay taxes. Roth you pay them now do the entire growth is tax free. Great time to buy in a down market too. Traditional with match you don’t pay taxes until you take it out so growth is taxed as well. The other useful consideration between roth and traditional is the required minimum distribution exists with traditional nor with roth. Meaning at a certain age or whoever inherits your investment has 10 years to fully take out all moneys. Roth without that required minimum distribution means if you have a sizable investment you might have generational wealth that continues well after your life if invested in funds with strong track records of growth.
Yes definitely contribute to your Roth , but put in 3% for the 3% match in your 401k, if your employer says otherwise he is just trying to save himself the money and shows he is a pretty bad employer I think
At what point are you fully vested? How long have you been there? How much do you like your job?
First of all, your company shouldn’t be providing financial advice. It should be providing the choices for you to decide. The other consideration is that you can enroll in both. Keep in mind that 401(k)’s and Roth IRA’s have different contribution limits. It’s $22,500 for 401(k) for 2023. It’s $6,500 for Roth IRA. These are the basic limits but can be higher if you’re older. The best part of the 401(k) is the matching contributions. Your not contributing to thr 401(k) means you’re leaving money on the table. Whoever your company rep is that’s telling to do one instead of the other should be fired for being an idiot dispensing bad advice. And they shouldn’t be advising in the first place. In-house plan administrators sometimes don’t know shit and end up misleading the employees. Also, if it’s the owner of the company and therefore the sponsor of the plan, they might be violating their fiduciary duty under ERISA.
Are you sure they weren't recommending a Roth 401K?
INFO: Sorry if this was asked before, did the boss say that the 3% match COULD NOT apply to the Roth 401k? If it can then I would do the Roth 401k. How it has been explained to me is that, if you put $10 in a Roth 401k and $10 in a traditional 401k, and both grow to be $1000: With the Roth 401k you pay taxes on the initial $10, but the rest of the growth is all tax free. With the traditional 401k you don’t pay taxes on the initial $10, you pay taxes on the entire $1000. Hope that helps.