No Employer 401K Match? Still Contribute

February 5th, 2007  |  Published in 401K  |  7 Comments

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?



  1. Lazy Man and Money says:

    February 6th, 2007 at 3:09 pm (#)

    I max out my 401k every year even with no match, but I’ve been thinking it might not be wisest plan lately. While you are deferring the taxes, you still pay eventually. So while it does grow faster, the government also gets it’s share of that growth at the end. That’s really not a big reason why I am rethinking things though.

    When you withdrawl money from a 401k plan it’s taxed at your current income rate. That’s probably 25+% for a lot of people. If you were to invest in stock after tax, you would only pay long-term capital gains and gains on the dividends – currently only 15%. I’m not a tax guru so research this with a tax professional.

  2. retirehappy says:

    February 6th, 2007 at 7:59 pm (#)

    I think that maxing out your 401k just to max out your 401k may not be the best option because just as how you want to diversify your assets, you want to diversify your tax profile as well. I’m currently maxing out my 401k (no match) because I want to shield income, not because I just want to max it out.

  3. 2million - My Journey to Financial Freedom says:

    February 12th, 2007 at 9:43 am (#)

    Carnival of Personal Finance #87 in Rio…

    Welcome to the 87th edition of the Carnival of Personal Finance. Just in time for the real “Carni’val in Rio” this week’s edition is ready to party!! So grab a cocktail and lets get started with the parade. First up,……

  4. raghavendrapb says:

    April 14th, 2007 at 9:47 pm (#)

    If the employer is NOT matching the 401(K) contributions, then I would prefer traditional IRAs which have same rules and benefits as of a 401(K) account. There are 2 reasons for this.

    1) With my own IRA, I can invest virtually in any stock or fund. But in 401(K) account, I cannot invest outside of the plan.

    2) When I change job, I don’t need to rollover process.

  5. Moe O. says:

    December 11th, 2007 at 6:56 pm (#)

    An employer who does not invest in employees’ retirement is not worth working for. Find another employer.

  6. Bob says:

    November 15th, 2011 at 11:21 am (#)

    Regarding raghavendrapb’s comment that you cannot invest in anything outside the 401k plan. Fidelity allows you to use a tool called Brokerage Link which allows you to buy / sell any security just like a trading account while inside the 401k. I’m using this full tilt.

  7. 401k says:

    June 8th, 2012 at 10:34 pm (#)

    My relatives every time say that I am wasting my time here at net, but I know I am
    getting know-how every day by reading such fastidious content.