Should you invest in your 401K – Photo credit: beyondblackwhite.com
Duh. Yeah. Many of us find it obvious to invest in our 401Ks as a source of retirement income, and even as a savings pool. And rightfully so, considering the perks a 401K plan can offer to employees including, but not limited to, employer matching, ability to borrow against it to purchase a home or pay for your child’s education, and the sheer fact that your money is growing tax-deferred.
Well, this is all fine and dandy, but because I like to keep my snack and money options open, I’ve always wondered…
1. If your employer’s plan is really not the cat’s meow: if your contributions are not matched at all, and the plan is frankly antiquated, think about setting up an Individual Retirement Account (IRA). Some good companies for this include Schwab, Vanguard or Fidelity.
2. If your debt is higher than your heels (i.e. You’re drowning in debt): if high-interest consumer debt is keeping you up at night, PAY YOUR DEBTS FIRST! If you can live with the moderate interest or can write off some of your debt (such as mortgage), your 401k may be a good option.
3. If your 401k is costing you your first born child (read: outrageous fees and costly funds): Scour the market for decent cost, deductible IRAs. You may get a better deal (and get to keep your first-born too)…
The Corporate Sis.
Most companies will strongly encourage you to participate or tell you that you are leaving money on the table if you do not. Before you join the 401k, do your research and make sure it is a good financial decision to invest. Great post from a realist point of view.
Thanks Zena, I’ve always participated in my 401ks without really questioning or even checking my investments. I recently learnt to compare all different options available, and it can make a difference. Hope all is well, thanks for the comment!