401k question

[elsie]

is it worth it to contribute to a 401k if your employer doesn't contribute anything in addition? I mean, isn't it just like putting money in a savings account?

tia,

[azul99]

is it worth it to contribute to a 401k if your employer doesn't contribute anything in addition?

Yes, it is, IMO, because saving for retirement is important. You can borrow money for college and other long-term goals, but not for retirement.

I mean, isn't it just like putting money in a savings account?

Yes and no, but mostly no. The money you sock away is from pre-tax earnings, whereas the money you put in a savings account is from post-tax earnings. With 401k money, because it's put away before it is taxed, the contribution is maximized (you can put away more pre-tax than post-tax), and your taxable income is reduced by however much you are putting away. With other, post-tax money, since you put it away after it's already been taxed, you don't derive the same benefits from that savings plan.

[elsie]

thanks ladies....I wish it wasn't true though :(

I'm so pissed my employer doesn't contribute or match any amount! It's so degrading to me that it's such a bad plan. :(

[Kerry]

Since you don't have any employer matching, you might consider doing a Roth IRA instead of/in addition to, contributing to a 401k.

[elsie]

Since you don't have any employer matching, you might consider doing a Roth IRA instead of/in addition to, contributing to a 401k.

that's a thought. I already ~have~ a Roth IRA. So would I just take the percentage of my pay that I would put in a 401, into the Roth instead? And how could I do that pre-tax? Or could I?

[Kerry]

No, unlike a 401k, a Roth is not pre-tax. The benefit to a Roth is that when you do get it, you get the full cash value (because taxes were already removed, and at a much smaller rate than what the value of it would be when you cash it in). Depending on your financial situation, I might max out your yearly Roth contribution, and then put any additional funds you have allocated to retirement into your company's 401k. If they did matching, I'd say to do the company IRA first, but since there's no additional monetary benefit to it, I'd do a Roth first.

[mirage1]

that's a thought. I already ~have~ a Roth IRA. So would I just take the percentage of my pay that I would put in a 401, into the Roth instead? And how could I do that pre-tax? Or could I?

A couple of links to help you decide:


Roths vs. 401(k)s (http://www.usatoday.com/money/perfi/columnist/netgains/2001-04-23-net.htm)

Calculator (http://www.smartmoney.com/retirement/401k/index.cfm?story=roth-ira-calculator)