“Should I avoid/cancel/skip my 401k?” This is a common question that comes across Quora – a Q&A site and I’m sure if you are starting at a new company, you have to make this decision. Some topics to consider include:
- Tax deductibility
- Contribution limits
- High income benefits
- and more
I discuss Skipping your 401k in my Quora answer here (excerpt and link below):
It depends. here are a few points to consider:
- 401ks allow much higher annual contributions, both for deductible or Roth 401k accounts. (see IRS info here: Retirement Topics – 401(k) and Profit-Sharing Plan Contribution Limits )
- 401k may be the only way to get a deduction on retirement contributions if your income is “too high (love phrases like that; “live too long” qualifies also as lovable):” you can not deduct an IRA if you have access to a 401k and your income ids above certain thresholds (see IRS info here: IRA Deduction Limits)
- 401ks will offer fewer investment options than you’d get elsewhere and it might be hard to truly diversify because most fund menus are designed to keep the plan sponsor from getting sued rather than giving you diversification. So you may not see a commodities fund, a real estate fund, or anything more granular than “SP500”, “foreign” and “emerging markets funds.”
- Expenses may be lower in your 401k or maybe not. besides I think this fight over 1–2 one hundredths of a percent is ridiculous. Worry more if you are ba**s to the wall invested at age 68 10 years into a bull market than if you’re paying .01% too much.
- You can take loans from a 401k – you can not from an IRA
- tax brackets will change in the future. You may want Roth exposure but you can do that in a 401k too.
- 401ks may offer some interesting benefits like NUA withdrawals and non deductible contributions that could benefit some people.
Hope this helps your thought process.