Timeline for Should one save up to purchase a house/condo or maximize their 401(k) first?
Current License: CC BY-SA 4.0
15 events
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| May 8, 2019 at 16:14 | comment | added | asgallant | @HelpfulFriend having a crappy 401(k) provider is certainly a reason to direct money elsewhere. | |
| May 8, 2019 at 16:14 | comment | added | yoozer8 | @tparker my answer does address that this is future money, and explicitly says to do your own math with your actual numbers. Obviously I am not advocating anyone defer their entire salary into a 401(k) at the expense of daily life; the question of saving for a down payment vs contributing to 401(k) implies that the money this choice applies to is above what is needed for rent/bills/etc | |
| May 8, 2019 at 15:39 | comment | added | Helpful Friend | @asgallant Justin nailed what my exact response was going to be. In my experience, the 401(k) providers my employers have chosen have had expense ratios that are 2-3 times more expensive than whats offered by the likes of Vanguard or Fidelity. Also the investment options have been far less desirable IMO. | |
| May 8, 2019 at 14:02 | comment | added | asgallant | @tparker used improperly, reducto ad absurdum becomes a fallacy, which your argument is dangerously close to. The "free money" argument is almost always brought up in the context of "do I invest my money in X or a 401(k)?" in which it is essentially free money. Of course, TINSTAAFL, nothing is truly "free" if you get deep enough into the nitty gritty details, but there are context in which the distinction is meaningless. | |
| May 8, 2019 at 4:39 | comment | added | tparker | @asgallant BTW, I'm not sure if your comment "reducto ad absurdum" was meant to be a criticism of my argument, but in logic, reducto ad absurdum is actually a completely legitimate method of argument. | |
| May 8, 2019 at 4:36 | comment | added | tparker | @asgallant Well, your mileage may vary, but I interpret the (repeated!) phrase "free money" to mean that "a rational agent would always take it up" - not that "a bunch of unstated assumptions about the OP's personal finances and the behavior of most American companies together imply that it's probably a good idea to take it up". | |
| May 8, 2019 at 4:30 | comment | added | asgallant | @tparker reducto ad absurdum. Nobody is arguing that it would be reasonable for anyone (absent some exceptional circumstances) to put all of their income in a 401(k). In the context of the question (invest in house or 401(k)) arguments about the marginal value of income are unlikely to be significantly relevant to the discussion of maximizing one's employer match. | |
| May 8, 2019 at 2:48 | comment | added | tparker | ... (and starve to death.) Most firms limit their match at a low enough value that it makes sense to max it out, but that's a very different claim from the claim that an employer match is always "free money", particularly if your income is low and the cost of delaying immediate access to a marginal dollar of income is high. | |
| May 8, 2019 at 2:47 | comment | added | tparker | This answer repeats a common misconception that an employer match to a 401(k) contribution is "free money" and should automatically be taken advantage of. There is absolutely a cost to the employer match, which is the time deferral before you can access your forgone income. In fact, there is no legal requirement that limits how much the employer can match, and some employers do not limit their match (as long as it's below the legal limit of $19k/year. If your income is below that, then your advice leads to the nonsensical conclusion that you should put all of your income in a 401(k) ... | |
| May 7, 2019 at 22:55 | comment | added | user2752467 | @asgallant You get to choose who your IRA broker is, but generally your employer chooses your 401k plan so that's who you're stuck with. You can usually find an IRA broker that has lower fees and more investment choices than your 401k plan. | |
| May 7, 2019 at 22:35 | comment | added | asgallant | @HelpfulFriend "Once you've gotten your full match, its often better to max out an IRA before continuing to contribute to the 401(k), if you are prioritizing retirement savings that is" in what way? They look basically the same to me, though I'm not an expert in retirement planning, so I could easily be missing an important difference. | |
| May 7, 2019 at 20:17 | comment | added | Dragonel | Also note that 401K contributions have a yearly limit. In the future, if you have extra money (a more lucrative job, a small but useful inheritance etc) you can use that to speed up paying off a mortgage, but your 401K may never "catch up" from not investing at least something into it now.. | |
| May 7, 2019 at 20:16 | comment | added | SolutionMill | Employers match could also be conditional. Some employers have plans with vesting periods for matching contributions (like 3-4 years). To get the match one needs to be sure (s)he works long enough for the company. | |
| May 7, 2019 at 18:46 | comment | added | Helpful Friend | +1 "contribute just enough to maximize the match." Even when not saving for a home this is generally sound advice. Once you've gotten your full match, its often better to max out an IRA before continuing to contribute to the 401(k), if you are prioritizing retirement savings that is. | |
| May 7, 2019 at 16:23 | history | answered | yoozer8 | CC BY-SA 4.0 |