If your employer offer a 401K match of some kind, it doesn’t take a brain surgeon to know that you should probably take advantage of free money and sock away a little bit for retirement. However, what if your employer doesn’t offer any sort of match, should you still contribute or should you consider other investment opportunities? I believe you should still contribute and here’s why.
Outside of the 401K employer match, the major benefit of a 401K is that you can invest pre-tax funds that grow without feeling the weight of taxation until you begin taking distributions in retirement. In the outside world (outside your 401K that is), you are investing post-tax dollars whose earnings are taxed. Why not take all the funds you would’ve invested, contribute it to a 401K, and be able to invest such that it grows absolutely tax free until you start taking distributions? Not only do you get a large pot to play with, it grows faster because you aren’t paying taxes as you go, and you can save some time by not having to do all the tax paperwork.
The only penalty you pay for contributing into a 401K is that you can’t get the funds out without paying a penalty until you retire. Certainly there are exceptions and you can borrow from it (a bad idea!), but for the most part you can’t pull it out without the dreaded 10% penalty. So, even if your employer doesn’t offer a match, consider putting a little bit in so that you’re at the very least saving some money – just don’t go full tilt unless you feel confident it’s right (maxing out your 401K is a decision independent of whether your employer matches, since that doesn’t really matter).
Any thoughts on this?