Is a “bad” 401k better than no 401k

[SonuvaFarmer]

Hello,

I am going for a corporate dental job and they offer a 401k through ADP as the administrator and there is no match. I have heard terrible things about them as a retirement plan admin. This is the first job where I have been offered a 401k plan so my knowledge of 401k plans is very limited. Is the tax incentive worth it? I could max out my 401k by the end of the year. FYI last year my wife had her first 401k as well (through Empower) and I was unable to take a deduction on my IRA contributions last year. Would I be better off putting this money in a non retirement fund? Please advise and thanks for your help on the matter.

[CordMcNally]

What kind of investment options do you have? I doubt you couldn't find a fund that wouldn't make it worth it.

[LazerBeams]

Hello,

I am going for a corporate dental job and they offer a 401k through ADP as the administrator and there is no match. I have heard terrible things about them as a retirement plan admin. This is the first job where I have been offered a 401k plan so my knowledge of 401k plans is very limited. Is the tax incentive worth it? I could max out my 401k by the end of the year. FYI last year my wife had her first 401k as well (through Empower) and I was unable to take a deduction on my IRA contributions last year. Would I be better off putting this money in a non retirement fund? Please advise and thanks for your help on the matter.

Generally you need to know
1) What are the administrative fees just for using them?
2) What are the investment options and fees for each option?

The savings depends on your tax bracket now vs what you expect in retirement.

As to the IRA question, worth reading up on the WCI posts about a backdoor roth IRA. You can still contribute $6k to the IRA and then do a conversion to Roth as long as you don't have another IRA laying around.

[spiritrider]

Define "bad." People have become too normalized to very low ERs.

However, almost all current 401k plan investments are still better for most people than taxable investment accounts.

It depends on your marginal ordinary income tax rates, but certainly total ERs and fees < 1.0% are far better than a taxable account.

[Larry Ragman]

Obviously not getting a match on your 401k is unfortunate, but building on points made above, tax deferred growth on funds with reasonable fees and expenses still worth it. And for sure do the back door Roth too for each of you.

[jhwkr542]

Reiterating, generally the tax break will offset any kind of fees in a bad 401k (though you haven't stated what the fees are). If all the ERs are sky high, that'd be a good place to put your bond investments.

[The White Coat Investor]

Hello,

I am going for a corporate dental job and they offer a 401k through ADP as the administrator and there is no match. I have heard terrible things about them as a retirement plan admin. This is the first job where I have been offered a 401k plan so my knowledge of 401k plans is very limited. Is the tax incentive worth it? I could max out my 401k by the end of the year. FYI last year my wife had her first 401k as well (through Empower) and I was unable to take a deduction on my IRA contributions last year. Would I be better off putting this money in a non retirement fund? Please advise and thanks for your help on the matter.

Yes, for two reasons.

# 1 It has to be REALLY bad (like 2%+ in fees) to eliminate the benefits tax-wise in the long run, and even then you still get estate planning and asset protection benefits.

# 2 Your money won't be in that 401(k) forever. The plan may get better. You may leave the job. They may fire you. Eventually you'll retire and roll it into an IRA etc.

[SonuvaFarmer]

Thank you all for the comments questions and advice. The expenses for the plan are roughly 1% per my discussion with their recruitment department. Apparently they use fidelity funds.

At this time I am unable to contribute to back door Roth due to the pro rata rule and I have mostly money in a traditional IRA. I guess another goal would be to roll the IRA over to a 401k if that is even possible.

I am still in the process of onboarding at this company. I will keep you posted as I learn more details.

[spiritrider]

A 401k plan may accept IRA rollovers at their discretion. Most due, but check with your employer, 401k administrator and or 401k SPD/plan document.

[gap55u]

I would recommend enough side gig income to start a solo-401K, and then eliminate all pro-rata issues. I don't think it makes sense to use a not-awesome 401K for that. Then again, I was fortunate and could roll my SEP-IRA into a good option.