Last year, I wrote about how I willingly went to work for a company that did not offer a 401(k) plan. At my previous company, I was contributing 19% to a 401(k), so when I took my new job and lost that option, I just started putting 19% of my pay into a regular brokerage account for saving.
Unfortunately (or fortunately, depending on how you look at it), my salary was high enough to disqualify me from contributing to any kind of IRA, so I just put it into a regular, taxable account.
A year later, my company now offers a 401(k) plan! In the competitive, tech-centric job market of the Seattle area, if a company wants to attract and retain good talent, it needs to offer such a basic benefit and the lack of a retirement plan was a serious drawback when it came to hiring.
To my surprise, they plan they came up with is surprisingly good.
- They offer a Roth 401(k) option, which I took. (But keep in mind, the company match portion still goes into a regular non-Roth 401(k) account.)
- Employee contributions are matched 20% up to the first 5% of your salary.
- The plan investment options are pretty good. There are several low cost mutual funds available, including some Admiralty share options from Vanguard funds. There are also retirement date target funds.
- Employees are automatically enrolled at 3% of their salary unless they opt to change that.
This is actually a double win for me. As I mentioned in the above linked post, when I accepted this job, I was able to get an additional $5,000 salary because of the company's lack of a 401(k). Now that they offer one, I get both benefits!
While my company's 401(k) plan offers good choices, I like having access to that additional 14% of my pay at any time. I can also adjust that amount more easily as my budget needs change. I have a wider range of investment options outside of the 401(k) plan. Yes, I may be paying a bit more in taxes, but that is the price I have to pay for the increased flexibility.
If you earn too much to contribute to any kind of IRA then you should consider saving a lot more than only 19%. With a good income you should max out your 401K and put a similar amount in a brokerage account. You'll be glad you did later.
ReplyDeleteIn this post, I was only referring to my new 401(k) and the account I created to replace losing the 401(k) from my previous employer. If you look across all our accounts, my and my wife’s overall savings rate is 35.4% - and it was in the upper 40%s before we bought our Teslas.
ReplyDeleteI am not interested in maxing out my 401(k) because I already have a bunch of money in tax-deferred and other retirement accounts from my first 30 years in the workforce. At this point in my life, I prefer to have the flexibility that access to money brings. If everything is in a retirement account, it’s basically locked up and inaccessible for the next 15 years. (Inaccessible without a penalty, that is.) Furthermore, by saving outside of my 401(k), I have many more investment options open to me than the 15 or 20 mutual funds the 401(k) offers.