The 401K program offered by my employer doesn't include a company match.
Should I participate in the plan? What are the criteria one should use for estimating the worth of the situation?
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It only takes a minute to sign up.Sign up to join this community
With a match, the 401(k) becomes the priority, up to that match, often ahead of other high interest debt.
Without the match, the analysis is more about the cost within the 401(k).
The 401(k) is a tax deferred account (let's not go on a tangent to Roth 401(k)) so ideally, you'd be skimming off money at 25% and saving it till you retire, so some of it is taxed at 0, 10, 15%. If the fees in the 401(k) are say 1.5% between the underlying funds and management fee, it doesn't take long to wipe out the potential 10 or 15% you are trying to gain.
Yes, there's a risk that cap gain rates go away, but with today's tax law, the long term rate is 15%. So that money put into a long term low cost ETF will have reinvested dividends taxed at 15% and upon sale, a 15% rate on the gains. There are great index ETFs with sub - .1% annual cost.
My simple answer is - If the total cost in that 401(k) is .5% or higher, I'd pass. Save the money in an outside account, using IRAs as best you can.
(The exact situation needs to be looked at very carefully. In personal finance, there's a lot of 'grey'. For example, a frequent job changer can view the 401(k) as a way of saving pretax, knowing the fee will only last 2 years, and will end with a transfer to the IRA)
Another consideration that is not in the hard numbers.
Many people, myself included, find it hard to have the discipline to save for something that is so far off. The 401K plan at work has the benefit of pulling the money out before you see it, so you learn to live on what is left more easily. Also, depending on the type of 401K it attaches penalties to using the money early disincentive you to pull it out for minor emergencies.
I believe @Dilip addressed your question alread, I am going to focus on your second question:
What are the criteria one should use for estimating the worth of the situation?
The criteria are:
I hope this helps.