401k questions

[ohgillian]

Jul 25, 2019 8:59:33 GMT -5 Cappy said:

DH's employer is a small nonprofit and they've only had a 401k option for the past 5 years (of his 11 working there). The employer match is .25% for each 1% the employee contributes, up to a max of 1% match. We are talking like $560 in "free money" based on his income. He has been contributing 7% and is fully vested based on service years. As I looked into bumping up the contribution % I just discovered the plan expense ratios are awful. All of the investment options are over 1% and there is a $20/year admin fee on top of that. He is in a 2050 target fund with a 1.07% expense ratio at American Funds right now.

My questions:

1) I know there is the pre-tax benefit, but are we not just losing all employer match benefit by this awful expense ratio/fee situation? Am I not considering something?

2) Would it be better to just start a new Traditional IRA (or Roth IRA) with Vanguard? (Desired contributions would not exceed limits for those vehicles and AGI is less than 123k)

3) If we change strategy to #2 can we roll everything over to Vanguard or does that require employee separation from the company? He's vested but still working there.

The bolded is the only one I can answer: you can't move the current balance of the 401k to Vanguard (or anywhere else) until he leaves the company. 

[puppylove64]

Depends on how much you contribute annually. 401k contributions limits ($19k) are much higher than iRA limits ($6k). I would look at your budget and decide how much you can contribute. The first portion should go in 401k to get the full match, 2nd max out an IRA with lower fees, then if you still want to contribute add to your 401k

[puppylove64]

Unless.... you are not disciplined enough to contribute to an IRA and need retirement withheld from your paycheck or you will spend it. If this is the case, only contribute to 401k