Hi all – I just started a new job and the organization wont match anything for my 401K until I’ve been there a year. I am wondering if i should even set up an account and contribute to the 401k at all and instead put it into a Roth IRA that is post tax..
I would likely roll whatever is in the 401k into said Roth IRA eventually so maybe it doesnt matter? Can someone give me some pros and cons of starting this 401k? Thanks!!
Job wont match anything in my 401k until I’ve been employed a year
byu/Particular_Egg_2219 inpersonalfinance
Posted by Particular_Egg_2219
10 Comments
https://www.reddit.com/r/personalfinance/w/commontopics
https://www.reddit.com/r/personalfinance/w/rothortraditional
Sure, max out your Roth IRA first then contribute to your 401k. Take advantage of tax-advantaged space.
Are you planning to leave this job soon?
Before I got my match, I just contributed to a roth ira. Now that I get the match, I contribute enough to my 401k to get the full match. Occasionally I’ll put a little bit in my roth IRA if I feel like I have some extra money. I never come close to maxing either of them out lol. But yeah nothing wrong with having both
Anything you contribute to the 401k reduces your taxable income. Not sure if thata important to you but its widely considered one of the many “pros” of a 401k
One benefit of setting it up now is money is taken out before you see final pay. It can be harder for some people to set it up after if they used to seeing their deposited paycheck being higher.
If you are planning on leaving before 1 year then I would probably not use it. I would maximize Roth this year ($7,500) and put whatever else you would contribute into a taxable brokerage.
Will be extra steps to roll over a few thousand (unless you will maximize it at $24,500) from 401k should you leave, for me personally, not really worth it. However if you will maximize it, then would do it even if you will leave.
The general rule is: employer account up to match, then Roth IRA to max, then back to employer account to max
So employer account up to 0, then roth IRA to max, then back to employer account.
There’s still the tax advantage even if they don’t match. When I was working, I didn’t have a match for a long time, but I still used the 401(k) contribution as a way to manage and defer my taxable income. Depending on my income, I saw it as an immediate discount of 10-24% on an investment.
Do they offer a Roth 401k? Why would you use it? It sounds like you can likely contribute more than the annual contribution limits into IRAs anyway. 401k limits are significantly higher. If you leave just take it with you.
Any chance you have a HSA you pick if your workplace offers it?
Do they have a true up? If so, I would contribute normally this year, then in January stop contributing until after your 1 year anniversary, save as much as you can up to that point, then contribute extra to maximize the match.