I’ve been offered a 401k with no match. I’m 39, and I currently have zero retirement savings. I’m trying to recover from a failed business and my main focus right now is refilling my emergency fund. I’m curious to know what you all think about this. Should I go for it or are there better options? Thanks for the advice!
A 401k means no capital gains tax, plus the chance to defer or realize income tax. Saving on taxes is always worth it!
Indy said:
A 401k means no capital gains tax, plus the chance to defer or realize income tax. Saving on taxes is always worth it!
Also, the alternative is the $7k limit for IRAs. The $23k 401k limit is a good deal if you’re disciplined enough to max it out.
@Max
Why not do both? You can contribute to both an IRA and a 401k, it’s a good combo!
Haven said:
@Max
Why not do both? You can contribute to both an IRA and a 401k, it’s a good combo!
True, but if the 401k wasn’t an option, I’d say go for the IRA. But since you have a 401k, use it to the fullest.
@Max
Exactly! And don’t forget about your HSA, which can be around $4k. More tax savings this year because it’s tax-deferred, no capital gains tax, and if you use it for medical expenses, you can avoid income tax too.
Indy said:
A 401k means no capital gains tax, plus the chance to defer or realize income tax. Saving on taxes is always worth it!
I wouldn’t say it’s always worth it. If you don’t have any income, you don’t pay taxes. You usually need money to make money.
Indy said:
A 401k means no capital gains tax, plus the chance to defer or realize income tax. Saving on taxes is always worth it!
Your statement isn’t quite right. A traditional 401k is tax-deferred, meaning you don’t pay taxes while the money’s in the account, but you will when you withdraw it. You’ll be taxed at your income rate, not the capital gains rate.
A Roth IRA, however, lets you take out the gains tax-free.
@Noor
I didn’t mention Roth vs Traditional, but in both IRAs and 401ks, there’s no capital gains tax. You just pay income tax depending on the type of account.
Indy said:
@Noor
I didn’t mention Roth vs Traditional, but in both IRAs and 401ks, there’s no capital gains tax. You just pay income tax depending on the type of account.
You didn’t clarify Roth vs Traditional. Plus, you’re still paying income tax on a Traditional 401k, just not capital gains tax. Your statement could mislead people, especially if they don’t know about tax brackets or retirement plans.
@Noor
But I said, ‘401k means not paying capital gains tax,’ so that’s accurate. 
Indy said:
@Noor
But I said, ‘401k means not paying capital gains tax,’ so that’s accurate.
But in a traditional 401k, you’re paying income tax, and possibly at a higher rate than capital gains. 
Yes, it’s still worth it. You get to tax shelter up to $23k each year, which is huge. The match would be nice, but the tax benefits alone make it worth it.
Even without the match, a 401k is worth it. You still get a tax benefit.
With no retirement savings and at 39, you really need to start contributing to your 401k. Max out all tax-sheltered accounts like 401k, IRA, and HSA if possible.
It depends on your tax bracket. If your marginal rate is below 20%, it might not be worth it. Deferring taxes isn’t as valuable if you’re already in a low bracket.
This is a small decision compared to others. But an IRA might slightly beat out a 401k if there’s no match. The only real difference is the contribution limits, and IRAs offer more flexibility with investments. 401k options can be limited and have higher fees.
I don’t have a match either. Here’s what I’m doing:
- Max out Roth IRA ($130 a week into $VT, total world market)
- $700 a month into my 401k (S&P 500 fund)
- $75 a week into $VTI and $25 into $VXUS in a taxable account for more flexibility
It’s been working out well so far.
Check out the personal finance flowchart. The general advice is to build a 3-6 month emergency fund before contributing to a tax-deferred account. But yes, the 401k is absolutely worth it.
Max out your Roth IRA first, then use the 401k for the tax benefits. Roth IRA usually offers better investment choices since it’s not limited by 401k options.
Drew said:
Max out your Roth IRA first, then use the 401k for the tax benefits. Roth IRA usually offers better investment choices since it’s not limited by 401k options.
Also, with a Roth IRA, you can withdraw your contributions anytime without penalty (but not your gains). You can’t do that with a 401k.