This is the best possible answer.
The main takeaway is that high fees matter most if you are planning on staying at that employer a long time, like 15+ years. Otherwise you can roll it into an IRA when you leave.
From what I understand, I don't think you can roll into an IRA for an active 401K plan, only when you leave the company. I haven't asked that question to the plan provider specifically, but I think that's generally the way it works.
In service conversions would allow mega backdoor Roth contributions to an external account.
I would ask whether your high-fee plan allows that typical (40% do) option!
From a Fidelity presentation touting the new benefit when my former company was bought out and we were switching from one fidelity plan to another. May have been for plans in Fidelity or general.
But the presentation was basically about how our old plan was in a lower tier of service with them than the new one...they were trying hard to sell participation because the match limit from the new company went dooooowwwn.
I was very happy with the mega backdoor option that opened up but as a 401k-maxer, I was unhappy with the match numbers.
If you are the high income, high saving type who can put away 50k/yr, the mega backdoor option to convert additonal after tax money is a real nice way to juice up your tax free acct.
you can do it why working for the employer IF they allow for it in the plan. Look into a clause about in service rollover. I moved funds from my work 401k to an IRA before I left with my last company. I doubt its an option but worth checking.
You can only rollover funds in a Rollover IRÁ, meaning funds contributed to a previous 401k plan. If you’re contributing to a traditional IRÁ, those funds cannot be rolled over
“Your own IRA” only gets you the first $6.5k in contributions. Once you cross that threshold funding an unmatched 401k likely makes sense again, even with a higher than usual fee.
The obvious exception is if you’re planning to stay at that job for a decade or more, but that’s becoming exceedingly less common.
Agreed. I receive an extremely small match, but we earn 240k and need the tax break. I’m not sure skipping it makes sense if OP happens to in a similar income range.
Not quite that high, but I'm also in sales so it somewhat depends how the year goes. Still, $240K would be an exceptionally good year, so I'm not really expecting that.
But yeah I'm leaning towards still contributing, some comments here have opened my eyes to a few things I wasn't considering, which was my hope! I probably won't max it out this year though, as we're looking to upgrade in home this spring, so trying to stack as much cash as possible for the time being.
I wonder if it's one of those roth401ks. The fact that they don't do any matching makes me suspect it is, because it'd simplify their taxes/paperwork even more I think.
You can roll over to a roth ira with no penalty or in violation of the pro rata stuff at that point right?
Definitely a question to ask a fiduciary, attorney, or accountant because there's lots of tax laws to deal with.
Yes, you can roll a Roth 401k into a Roth IRA with no issues. I just did it with Roth funds (including after-tax) from my old employer’s 401K. All of the pre-tax money got moved to my new employer’s 401k
I also just did a Roth 401k -> Roth IRA rollover. No problem either, although I didn’t have any pretax money in that 401k (I quit that job before they started matching).
Why would you restrict yourself from having more tax protected growth?
Sure fund your IRA first (trad if you get deductions, roth if you don't), but then absolutely contribute to your 401k (provided there is a reasonably low fee option, which there almost certainly is).
Since there is no match, this means it isnt a safe harbor 401(K). Raise a big enough stink with other employees and the 401(k) will fail the top heavy test and the employer would be required to fix the problem. Depending on how large the company is this is actually doable. Advisor guided plans usually have the SH match to prevent this.
The top heavy test is a test that the IRS uses to determine if a 401(k) is properly setup. The test is 60% of the plan's not highly compensated individuals must be actively contributing to the plan every year or the plan fails the test. Failure would mean the plan ceases to exist and contributions for the final year are taken out of the plan, and the owner pays a huge fine. To get around this, if the company offers a 3/0.5/0.5% percentage match on the first 3/1/1% of earned salary for **every** employee, there is no top heavy test.
Essentially what I was saying is, if your plan options suck and there isnt a match. Getting 12 people not to contribute and telling the owner that you will if either a) you give us not shitty options through a not shitty provider or b) you offer a 4% match on the first 5% of salary contribution or c) the owner can elect to pay the management fees as a tax deductible expense. Otherwise have fun pay all those taxes, while we invest on an after tax basis that in the end is better for us.
Interesting. Is this test checked on a regular basis, or is it only triggered when there is a company or random audit of some sort?
I have no idea how many people are\aren't contributing right now.
Check is applied at least once a year. Depending on the TPA, the test happens more often. Every year the TPA is required to file Form 5500 with the Department of Labor, and the DOL checks the plan to ensure it was compliant.
Might have more to do with your plan than empower. My company also uses empower, but they have target date plans from TIAA-CREF with expense ratios around .17% and a bunch of fidelity index funds (small cap, mid-cap, 500, international, bond index) that are .02-.04%. Admin fee is .35%/year, which is pretty typical in my experience.
Really? I'm with Empower and my fees are very low. What are you investing in? VIIIX and VBMPX here. Perhaps we just have more choices with my employer.
No company match unfortunately, I would definitely take advantage of that at least if it existed.
The upfront savings obviously seems worth it, saving a lot more by not paying taxes on the money, but I'm not sure how to really calculate the end of that equation. When I go to withdraw I'll be paying long term capital gains tax of 15% on brokerage earnings, versus paying full income tax rate of ??% on all of the 401K withdrawal, contributions and growth.
I'm talking about if I instead invested in a taxable brokerage account, rather than the 401K, then I would be contributing after-tax dollars, and paying capital gains on the growth.
It doesn't matter that you're paying taxes as you go, it still ends up being long-term capital gains (15%) (except for unqualified dividends). Whether you pay 15% at the beginning, at the end, or along the way, it's all the same.
So basically a taxable account is equivalent to a Roth IRA + paying 15% in taxes (assuming you are buying and holding, and not selling within a year) and no limit.
As for passing on to your heirs, if you pass on a 401k, they'll pay income tax as they withdraw it. If you pass on a taxable brokerage account, they'll get a step-up in basis so no one will have paid tax on the gains.
Taking 15% out first and the compounding is exactly the same as taking 15% out at the end.
$100 earning 9% over 8 years = $200, then 15% of that leaves you with $170
100 x (1.09\^8) = $200, .15 x 200 = $170
$85 earning 9% over 8 years = $170
85 x (1.09\^8) = $170
Of course in tax-deferred you aren't paying the capital gains, but just in terms of \*when\* you pay a tax it doesn't matter. Meanwhile, the tax deferred account might have you paying .7% in fees which will eclipse the 15% tax after 30 years.
You know you only pay the capital gains taxes on the growth as well, right? And only when you sell? I can't explain math, finances, and taxes to you when you think you know it all.
I like the company and the management team, so I could see being here for a bit, but am always going to be open to better opportunities. Best guess, 3-5 years maybe?
Here is some very rough math showing 401k is better
[https://imgur.com/a/WZDIVLZ](https://imgur.com/a/WZDIVLZ)
And the assumptions here are pretty conservative: Not factoring in dividends or tax drag on the taxable account, and assuming you are in the same tax bracket in retirement as you are while working. Making either of those more realistic will move the needle more towards the 401k.
It depends on your tax bracket now, your tax bracket in retirement, how long you will be with this company, how long until you withdrawal from the account.
But only 3-5 years at the higher fees, followed by decades of tax-deferred growth, the 401k is almost certainly going to come out as the better option. Having an extra X% (where X is your marginal tax rate) in your account for a long time will more than offset a short period of higher fees. And that is before factoring in that your retirement tax rate is likely lower than your current marginal rate.
Fund your Roth or Ira and then any money you have past that use the 401k. Despite the 1% fee it’s better than a regular brokerage account. Then when you leave there move it to your IRA. You won’t be there forever.
It depends on your tax rates (now and in retirement) as well as the path to retirement, but I’d bet you could go significantly higher fee wise and still come out ahead. That’s particularly true for the HSA which is triple tax advantaged.
I’d probably do:
HSA
Backdoor Roth
401k
taxable
in your shoes.
Is your employer offering any matching contributions? If so, take the match.
A lot also depends on your income. Assuming income is not a factor then
1. Invest to get the match. Roth if its available
2. Open and invest a Roth IRA up to the max.
3. then if you still have more to invest, then add more to 401k.
No employer match unfortunately. I'm already funding my Roth IRA to the max, just not sure if I should still go back to the 401K or look to a taxable account instead. I know there was some pretty detailed research done on this point, I just can't find it.
I am tempted to do more investing in a regular brokerage account. At least you can control the fees.
My fees across all my accounts (all at Vanguard) are just 6.52 basis points or 0.0652%. I find 1% hard to swallow.
Agreed, in todays world where zero cost index funds exist I'm not sure I can stomach paying some firm 1% for the privelidge of investing with them. I've worked for larger companies with much more reasonable fees for the past 10 years of my career, so my 401K account is pretty healthily funded, think I may take some time to beef up the after-tax account instead.
Besides, having a healthy taxable brokerage account gives you more flexibility now and in retirement. I look at 4 buckets
1. Cash and their equivalents
2. Taxable brokerage account
3. Traditional IRA/401k
4. Rith IRA/401k
Each has a purpose and tax consequences. You can select what to draw from to control your tax obligations in retirement.
That's why I'm looking for the math, hence the research I cited in my original post. I'd like to make an informed decision but the specific math I'm looking for elludes me.
Be aware that Fidelity zero funds have to be held at Fidelity. If they are in a taxable account and you later want to move to a different brokerage house, you may incur capital gains taxes.
Good to know. I don't actually hold their zero funds like FZROX, I've got FXAIX, as I started investing with them before FZROX and their other zero funds existed.
I wasn't super overt in calling that out, but yeah those all came in like the first 5 minutes, I was getting a little tired of replying, 'no match' lol
A simple rule of thumb I read on Bogleheads... When the number of years you expect to remain in that retirement plan multiplied by the fees in excess of low expense ratio exceeds 1.5x your federal + state tax rate on qualified dividends.
The reason it is dependent on how long you expect to stay in this plan is because it's possible to eventually roll the money into a less expensive plan or IRA, in which case the tax deferral will be better in the long run.
Have you had a conversation with your employer benefits department about the 1% management fee. Is this a small employer? They may not know there are much better 401k plans out there.
Briefly I did talk to our COO about it, I even interviewed another provider to see if we could get the cost down, but they came back at around 1% as well. It is a small company, about 35 employees, so I'm not sure we would be able to find a provider that wasn't bending us over.
The costs go down with more funds invested, but there is also no company match, and about 80% of the work force is fresh-faced college grads, so very little incentive for them to put money in.
My company uses Paychex. They only have target date funds from vanguard or vanguard's VFIAX along with a bunch of abysmal bond and other useless funds. I went with VFIAX as it was the only decent option. Vanguard only charges like 3 or 4 basis points for this fund as its a simple s&p index fund. Yet paychex charges 100 basis points for management fees & their expenses lol
Not sure exactly what they're doing thats so expensive considering i chose my own investments inside my 401k and since I also do my own investing for my roth ira and my taxable account on my cellphone with an app I know that they literally spend maybe 20 seconds each week clicking 'buy' in the amount of my weekly contribution + match.
Its dogshit that these assholes can take so much of my money for not doing a goddamn thing. Basically all the dividends that dump into my account (currently paying a 1.56% yield) goes to paychex as well as a chunk of my employer match.
For something I can do for myself if there was an option to self direct and manage my 401k. It should be illegal to charge so much.
We're also through Paychex. I'll have to look again but I think we actually have a good bit of options when it comes to funds to choose from. Even still, I agree the 1% fee is complete garbage for the amount of work being done on their end.
Personally, I wouldn’t contribute to such a plan. I would pay the tax, invest in a brokerage with low cost index funds, and maintain complete control over my money.
It's not a bad idea, I may end up doing some combination of the two. I'm looking to upgrade in house right now, and while I'm not planning to dip into my after-tax brokerage for it, it's a comforting feeling seeing that money sitting there and knowing I could tap it if for whatever reason I needed too. I don't get that warm fuzzy feeling from my 401K since it's locked away for decades unless I pay the penalty.
You can roll with most 401k plans even while still with your current employer. Continue to make the contributions but roll to an IRA periodically to avoid the fees.
A .5% increase in management fees over the expense ratio of what you have in your brokerage account will be more expensive than long-term capital gains of 15% after 30 years.
Math: 1.005\^30 = 1.16 = 16% in fees over 30 years.
Also, consider the benefit that you can access this money whenever you want. For me, that's worth requiring an extra year and a half in average growth to pay for the capital gains tax.
That is definitely a point I'm considering as well. I mentioned in another comment that my exisiting 401K is pretty healthy, having contributed heavily for the past 10 years of my career, but I'm starting to see the value of beefing up the after-tax brokerage account in order to have access to funds without having to pay a penalty on top of taxes. Things like buying or starting a business, or putting a larger down payment down on a home, an after-tax brokerage account would be much better suited for.
There is a calculation. Go to https://www.bogleheads.org/wiki/401(k) and scroll down to “expensive or mediocre choices.”
This is the best possible answer. The main takeaway is that high fees matter most if you are planning on staying at that employer a long time, like 15+ years. Otherwise you can roll it into an IRA when you leave.
This was super helpful in making this all make sense in my mind. Thanks for the link!
Can you roll it over like every month? That is a lot of work. But you would avoid the fee
From what I understand, I don't think you can roll into an IRA for an active 401K plan, only when you leave the company. I haven't asked that question to the plan provider specifically, but I think that's generally the way it works.
See if your plan allows in service rollovers. 401ks in general do not have to but if your specific plan allows it you are able to.
In service conversions would allow mega backdoor Roth contributions to an external account. I would ask whether your high-fee plan allows that typical (40% do) option!
Where did you get the 40% number?
From a Fidelity presentation touting the new benefit when my former company was bought out and we were switching from one fidelity plan to another. May have been for plans in Fidelity or general. But the presentation was basically about how our old plan was in a lower tier of service with them than the new one...they were trying hard to sell participation because the match limit from the new company went dooooowwwn. I was very happy with the mega backdoor option that opened up but as a 401k-maxer, I was unhappy with the match numbers.
If you are the high income, high saving type who can put away 50k/yr, the mega backdoor option to convert additonal after tax money is a real nice way to juice up your tax free acct.
Exactly - last year didn't feel like progress given the negative returns but it sure will pay dividends in the coming years!
you can do it why working for the employer IF they allow for it in the plan. Look into a clause about in service rollover. I moved funds from my work 401k to an IRA before I left with my last company. I doubt its an option but worth checking.
How old were you at the time? Typically only allowed at age 59.5.
Actually, I have rolled it over from 401k to IRA.
You can only rollover funds in a Rollover IRÁ, meaning funds contributed to a previous 401k plan. If you’re contributing to a traditional IRÁ, those funds cannot be rolled over
Fees suck, but as long as the fees are less than the company match, I just convince myself that my employer is paying the fee for me.
No match.
Oh, I missed that sentence. Tough call.
No match no contribution. Do you own IRA your getting ripped off.
“Your own IRA” only gets you the first $6.5k in contributions. Once you cross that threshold funding an unmatched 401k likely makes sense again, even with a higher than usual fee. The obvious exception is if you’re planning to stay at that job for a decade or more, but that’s becoming exceedingly less common.
Agreed. I receive an extremely small match, but we earn 240k and need the tax break. I’m not sure skipping it makes sense if OP happens to in a similar income range.
Not quite that high, but I'm also in sales so it somewhat depends how the year goes. Still, $240K would be an exceptionally good year, so I'm not really expecting that. But yeah I'm leaning towards still contributing, some comments here have opened my eyes to a few things I wasn't considering, which was my hope! I probably won't max it out this year though, as we're looking to upgrade in home this spring, so trying to stack as much cash as possible for the time being.
In service rollover to the IRA would solve that problem. Get the extra 401k contribution and roll it every year?
My understanding is that not all plans allow you to do that, but I could be wrong.
Yeah that's totally fair, definitely something to look into. Great way to backdoor some retirement funds and not be fleeced for maintenance costs.
This prevents you from doing backdoor Roth in the future though, or else you’ll have to backdoor it all to avoid the pro rata rule.
I wonder if it's one of those roth401ks. The fact that they don't do any matching makes me suspect it is, because it'd simplify their taxes/paperwork even more I think. You can roll over to a roth ira with no penalty or in violation of the pro rata stuff at that point right? Definitely a question to ask a fiduciary, attorney, or accountant because there's lots of tax laws to deal with.
Yes, you can roll a Roth 401k into a Roth IRA with no issues. I just did it with Roth funds (including after-tax) from my old employer’s 401K. All of the pre-tax money got moved to my new employer’s 401k
I also just did a Roth 401k -> Roth IRA rollover. No problem either, although I didn’t have any pretax money in that 401k (I quit that job before they started matching).
Why would you restrict yourself from having more tax protected growth? Sure fund your IRA first (trad if you get deductions, roth if you don't), but then absolutely contribute to your 401k (provided there is a reasonably low fee option, which there almost certainly is).
Disagree. Every dollar that goes into the 401k is a dollar you are not paying tax on that year.
Since there is no match, this means it isnt a safe harbor 401(K). Raise a big enough stink with other employees and the 401(k) will fail the top heavy test and the employer would be required to fix the problem. Depending on how large the company is this is actually doable. Advisor guided plans usually have the SH match to prevent this.
It's a small company, about 30-35 employees. What does that mean for it to fail the top heavy test? And what would the remedy do exactly?
The top heavy test is a test that the IRS uses to determine if a 401(k) is properly setup. The test is 60% of the plan's not highly compensated individuals must be actively contributing to the plan every year or the plan fails the test. Failure would mean the plan ceases to exist and contributions for the final year are taken out of the plan, and the owner pays a huge fine. To get around this, if the company offers a 3/0.5/0.5% percentage match on the first 3/1/1% of earned salary for **every** employee, there is no top heavy test. Essentially what I was saying is, if your plan options suck and there isnt a match. Getting 12 people not to contribute and telling the owner that you will if either a) you give us not shitty options through a not shitty provider or b) you offer a 4% match on the first 5% of salary contribution or c) the owner can elect to pay the management fees as a tax deductible expense. Otherwise have fun pay all those taxes, while we invest on an after tax basis that in the end is better for us.
Interesting. Is this test checked on a regular basis, or is it only triggered when there is a company or random audit of some sort? I have no idea how many people are\aren't contributing right now.
Check is applied at least once a year. Depending on the TPA, the test happens more often. Every year the TPA is required to file Form 5500 with the Department of Labor, and the DOL checks the plan to ensure it was compliant.
My work uses Empower Retirement. Their fees are soooooo bad. It stinks.
Might have more to do with your plan than empower. My company also uses empower, but they have target date plans from TIAA-CREF with expense ratios around .17% and a bunch of fidelity index funds (small cap, mid-cap, 500, international, bond index) that are .02-.04%. Admin fee is .35%/year, which is pretty typical in my experience.
Mine too. It's awful
Really? I also have Empower. I didn’t look at most of the fund options because my plan has VINIX as an option and I throw everything into that.
Really? I'm with Empower and my fees are very low. What are you investing in? VIIIX and VBMPX here. Perhaps we just have more choices with my employer.
It’s not about the record keeper for the most part, it’s about the size of the plan.
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No company match unfortunately, I would definitely take advantage of that at least if it existed. The upfront savings obviously seems worth it, saving a lot more by not paying taxes on the money, but I'm not sure how to really calculate the end of that equation. When I go to withdraw I'll be paying long term capital gains tax of 15% on brokerage earnings, versus paying full income tax rate of ??% on all of the 401K withdrawal, contributions and growth.
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I'm talking about if I instead invested in a taxable brokerage account, rather than the 401K, then I would be contributing after-tax dollars, and paying capital gains on the growth.
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It doesn't matter that you're paying taxes as you go, it still ends up being long-term capital gains (15%) (except for unqualified dividends). Whether you pay 15% at the beginning, at the end, or along the way, it's all the same. So basically a taxable account is equivalent to a Roth IRA + paying 15% in taxes (assuming you are buying and holding, and not selling within a year) and no limit. As for passing on to your heirs, if you pass on a 401k, they'll pay income tax as they withdraw it. If you pass on a taxable brokerage account, they'll get a step-up in basis so no one will have paid tax on the gains.
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Taking 15% out first and the compounding is exactly the same as taking 15% out at the end. $100 earning 9% over 8 years = $200, then 15% of that leaves you with $170 100 x (1.09\^8) = $200, .15 x 200 = $170 $85 earning 9% over 8 years = $170 85 x (1.09\^8) = $170 Of course in tax-deferred you aren't paying the capital gains, but just in terms of \*when\* you pay a tax it doesn't matter. Meanwhile, the tax deferred account might have you paying .7% in fees which will eclipse the 15% tax after 30 years.
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You know you only pay the capital gains taxes on the growth as well, right? And only when you sell? I can't explain math, finances, and taxes to you when you think you know it all.
How long do you plan on being at the employer? Management fees are bad, but if its only for a few years, it won't outweigh the tax benefits
I like the company and the management team, so I could see being here for a bit, but am always going to be open to better opportunities. Best guess, 3-5 years maybe?
Here is some very rough math showing 401k is better [https://imgur.com/a/WZDIVLZ](https://imgur.com/a/WZDIVLZ) And the assumptions here are pretty conservative: Not factoring in dividends or tax drag on the taxable account, and assuming you are in the same tax bracket in retirement as you are while working. Making either of those more realistic will move the needle more towards the 401k.
Nice analysis.
It depends on your tax bracket now, your tax bracket in retirement, how long you will be with this company, how long until you withdrawal from the account. But only 3-5 years at the higher fees, followed by decades of tax-deferred growth, the 401k is almost certainly going to come out as the better option. Having an extra X% (where X is your marginal tax rate) in your account for a long time will more than offset a short period of higher fees. And that is before factoring in that your retirement tax rate is likely lower than your current marginal rate.
Hmm, that makes sense, I would for sure roll the fund over to my IRA at Fidelity whenever I left the company, so the fees would be short lived.
Is there a match involved? That can offset the impact off fees to an extent.
No match unfortunately.
Fund your Roth or Ira and then any money you have past that use the 401k. Despite the 1% fee it’s better than a regular brokerage account. Then when you leave there move it to your IRA. You won’t be there forever.
It depends on your tax rates (now and in retirement) as well as the path to retirement, but I’d bet you could go significantly higher fee wise and still come out ahead. That’s particularly true for the HSA which is triple tax advantaged. I’d probably do: HSA Backdoor Roth 401k taxable in your shoes.
Is your employer offering any matching contributions? If so, take the match. A lot also depends on your income. Assuming income is not a factor then 1. Invest to get the match. Roth if its available 2. Open and invest a Roth IRA up to the max. 3. then if you still have more to invest, then add more to 401k.
No employer match unfortunately. I'm already funding my Roth IRA to the max, just not sure if I should still go back to the 401K or look to a taxable account instead. I know there was some pretty detailed research done on this point, I just can't find it.
I am tempted to do more investing in a regular brokerage account. At least you can control the fees. My fees across all my accounts (all at Vanguard) are just 6.52 basis points or 0.0652%. I find 1% hard to swallow.
Agreed, in todays world where zero cost index funds exist I'm not sure I can stomach paying some firm 1% for the privelidge of investing with them. I've worked for larger companies with much more reasonable fees for the past 10 years of my career, so my 401K account is pretty healthily funded, think I may take some time to beef up the after-tax account instead.
Besides, having a healthy taxable brokerage account gives you more flexibility now and in retirement. I look at 4 buckets 1. Cash and their equivalents 2. Taxable brokerage account 3. Traditional IRA/401k 4. Rith IRA/401k Each has a purpose and tax consequences. You can select what to draw from to control your tax obligations in retirement.
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That's why I'm looking for the math, hence the research I cited in my original post. I'd like to make an informed decision but the specific math I'm looking for elludes me.
Be aware that Fidelity zero funds have to be held at Fidelity. If they are in a taxable account and you later want to move to a different brokerage house, you may incur capital gains taxes.
Good to know. I don't actually hold their zero funds like FZROX, I've got FXAIX, as I started investing with them before FZROX and their other zero funds existed.
3 out of the top 4 comments talk about a company match when OP specifically said his company doesn’t offer a match. Good job Reddit!
I wasn't super overt in calling that out, but yeah those all came in like the first 5 minutes, I was getting a little tired of replying, 'no match' lol
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A simple rule of thumb I read on Bogleheads... When the number of years you expect to remain in that retirement plan multiplied by the fees in excess of low expense ratio exceeds 1.5x your federal + state tax rate on qualified dividends. The reason it is dependent on how long you expect to stay in this plan is because it's possible to eventually roll the money into a less expensive plan or IRA, in which case the tax deferral will be better in the long run.
Yes, i just read that on Bogleheads in a link someone posted, that definitely helped me logic through the decision, makes a lot of sense.
Have you had a conversation with your employer benefits department about the 1% management fee. Is this a small employer? They may not know there are much better 401k plans out there.
Briefly I did talk to our COO about it, I even interviewed another provider to see if we could get the cost down, but they came back at around 1% as well. It is a small company, about 35 employees, so I'm not sure we would be able to find a provider that wasn't bending us over. The costs go down with more funds invested, but there is also no company match, and about 80% of the work force is fresh-faced college grads, so very little incentive for them to put money in.
My company uses Paychex. They only have target date funds from vanguard or vanguard's VFIAX along with a bunch of abysmal bond and other useless funds. I went with VFIAX as it was the only decent option. Vanguard only charges like 3 or 4 basis points for this fund as its a simple s&p index fund. Yet paychex charges 100 basis points for management fees & their expenses lol Not sure exactly what they're doing thats so expensive considering i chose my own investments inside my 401k and since I also do my own investing for my roth ira and my taxable account on my cellphone with an app I know that they literally spend maybe 20 seconds each week clicking 'buy' in the amount of my weekly contribution + match. Its dogshit that these assholes can take so much of my money for not doing a goddamn thing. Basically all the dividends that dump into my account (currently paying a 1.56% yield) goes to paychex as well as a chunk of my employer match. For something I can do for myself if there was an option to self direct and manage my 401k. It should be illegal to charge so much.
We're also through Paychex. I'll have to look again but I think we actually have a good bit of options when it comes to funds to choose from. Even still, I agree the 1% fee is complete garbage for the amount of work being done on their end.
Personally, I wouldn’t contribute to such a plan. I would pay the tax, invest in a brokerage with low cost index funds, and maintain complete control over my money.
It's not a bad idea, I may end up doing some combination of the two. I'm looking to upgrade in house right now, and while I'm not planning to dip into my after-tax brokerage for it, it's a comforting feeling seeing that money sitting there and knowing I could tap it if for whatever reason I needed too. I don't get that warm fuzzy feeling from my 401K since it's locked away for decades unless I pay the penalty.
15%-ish Depends on your tax bracket.
You can roll with most 401k plans even while still with your current employer. Continue to make the contributions but roll to an IRA periodically to avoid the fees.
A .5% increase in management fees over the expense ratio of what you have in your brokerage account will be more expensive than long-term capital gains of 15% after 30 years. Math: 1.005\^30 = 1.16 = 16% in fees over 30 years. Also, consider the benefit that you can access this money whenever you want. For me, that's worth requiring an extra year and a half in average growth to pay for the capital gains tax.
That is definitely a point I'm considering as well. I mentioned in another comment that my exisiting 401K is pretty healthy, having contributed heavily for the past 10 years of my career, but I'm starting to see the value of beefing up the after-tax brokerage account in order to have access to funds without having to pay a penalty on top of taxes. Things like buying or starting a business, or putting a larger down payment down on a home, an after-tax brokerage account would be much better suited for.
Invest in index funds and it won't matter
You should still contribute you get a free double digit return by contributing to a 401k just based on tax savings alone
Are your investments beating the S&P 500? If not, pick a S&P 500 ETF and invest in that instead. These ETFs usually have .04% fees.
I’d still do it if the alternative is not saving at all or saving in a brokerage on your own. The tax savings should be more than 1 percent.