Ask Bob: Overcoming a Lack of 401(k) Match

Robert Powell, CFP®

Question

I thought I would ask you about finding a strategy to overcome the lack of 401(k) match available from my new employer. It's amazing how a match coupled with compounding interest grows so fast. Below is my situation: I'm 55 years old, hope to work five to 10 more years, max. Married with two adult children. Currently employed but moving to a new firm. I have a 401(k) account from my current employer and they provide a 1% match. Will likely rollover to my IRA. My new company provides a 401(k) but there is no match. I have a pension still with a previous employer and I rolled my previous employer's 401(k) to my IRA.

Answer

"It is always good to see someone being so responsible about retirement planning," says Paul Kalra, founder of Signature America Wealth Management. Even though there is no match for the 401(k), he says, the fact that your employer is offering a 401(k) enables you to defer as much as $26,000 of your income to your retirement account in 2020 (since you're over age 50), which is a lot better than the $7,000 limit of an IRA.

Kalra cautions, "Keep in mind that a 401(k) serves no purpose if you are not actively managing it. If there is no growth, then all you have done is postponed your taxes, perhaps to a period when the tax rates may be much higher in order to pay down the nation's deficit." He adds, "Target funds are a lazy man's choice, but they are still better than 'flat line'." If you have a significant sum in your IRA (at least $100,000), Kalra recommends engaging with a good, experienced wealth manager. "For about a 1% annual fee, you will have a coach you can depend on and whom you can talk to whenever you feel nervous about the markets."

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