My company doesn’t match my 401(k) contributions (or it’s a very small match). Should I still use my 401(k)?

Employer matching contributions to your 401(k) are a beautiful thing. They are also a thing of confusion.

Most 401(k)s I’ve come across have matches of some sort. But what is a good match? And if your match isn’t good, or if there isn’t one at all, should you still use your 401(k)? Or mix and match with an IRA?

I’ll put the bottom line at the top for you impatient types: 401(k)s are wonderful in many ways, and in general it’s best to use your 401(k) to its fullest, regardless of match. Employer match is just icing on the cake.

And if you don’t believe me, I’ve provided another 1000 or so words to convince you.

What Is a Good 401(k) Match?

Well, there is no hard and fast rule about what makes a “good” 401(k) match.

• The worst I’ve seen is, of course, no match at all.
• Amazon provides a better-than-nothing-but-still-kinda-scrawny match: they match 50% up to 4% of your income, meaning a total 2% match.
• Examples of good matching I’ve seen:
  • 100% match up to 5%. This was in a startup, surprisingly.
  • At Google, in 2017, they would match 50% of the amount you contribute, up to a maximum matching contribution of $9,000 (which is 50% of the 2017 contribution limit of $18k). This gives you incentive to max out your 401(k).

Where does your company match fall along that spectrum from “none” to “Google”? (I’m no Google shill, and I have my fair share of “issues” with Google, but I give them credit for a truly outstanding benefits package.)

Also, remember that the 401(k) match is one of those things you should definitely look for when evaluating a job offer. You can simply add it to the offered salary to quickly compare two offers.

Always Get the Full Match.

(I pulled this from the Ten Commandments of Personal Financial Planning…which I of course just made up but I wouldn’t be surprised if it existed.)

You need to contribute enough to your 401(k) to get the full match, whether your match is great or crappy. Matching contributions are “free money,” money you won’t get unless you contribute.

Another way to look at it is that it’s a great return on your investment. You “invest” $1 in your 401(k), and now all of a sudden you have $2 (or $1.50, if your match is 50%). You’re like an Investing Genius, you are.

Here’s an example: Let’s say you:

• Earn $100k/year (otherwise known as Easy Math Income)
• Max out your 401(k) ($18,500 in 2018)
• Your match is 100% up to 5%

That means the employer is giving you an extra (5% of $100,000=) $5000.

If instead you make $200k/year, that 5% match would mean an extra (5% of $200,000=) $10,000. Not too shabby!

After You’ve Gotten the Full Match, or If You Don’t Get Any Match at All, the Analysis is the Same.

Once you’re no longer getting matching contributions from your employer—whether that’s because you’ve maxed out the company match, or there was no company match to begin with—I suggest you follow the same analysis to decide whether you should put another dollar into your 401(k), or save your money elsewhere.

Why You Should Contribute Money to Your 401(k)

I started drawing up a list of reasons you should use your 401(k) regardless of match. At first it was a short, but powerful list. And then I kept adding, and adding, and adding reasons that 401(k)s are awesome.

Which leads me to conclude: You’d better have a damn good reason not to participate in your 401(k), even if there’s no match.

1. It’s dead easy to save. This is the most important reason, in my opinion. Improving your personal finances is first and foremost about controlling your behavior. But behavior change is hard, and automation is one way to get around our innate animal tendency to be lazy.

Contributing to your 401(k) is perhaps the easiest act of saving you’ll ever encounter. So, unless you’re pretty darn sure you’re going to be able to make yourself save to another account, I’d recommend sticking with your 401(k).

2. Higher annual contribution limit. You gotta save for retirement, whether you do it in your 401(k) or an IRA (a plain old investment brokerage account is also a worthy contender, but it doesn’t give the tax benefits the others do, so I’ll ignore it for now). A rule of thumb about retirement savings is that you need to save 15% of your income every year.

If you make $100k/year, 15% is $15k. If you’re under 50 years old, however, you can only contribute $5500/year to an IRA. Whereas you can contribute $18,500 to a 401(k). You can save all of that into a 401(k); you can’t save all of that into an IRA.

And if your income is $200k/year, your 401(k) won’t be enough, but it’ll be better than an IRA.

3. Legal protection. The money inside your 401(k) is protected, without limit, against creditors (i.e., when you declare bankruptcy). (The most famous example of this is OJ Simpson keeping his retirement savings after losing the civil case for Nicole Simpson’s murder, along with other unsavory behavior.)

So, while declaring bankruptcy is unlikely, if it happens, legal protection will jump right to the top of the list of reasons to put your money in a 401(k). It’s a bit like insurance for car accidents: unlikely to happen, but when it does happen, you are soooo happy you have car insurance.

4. Inexpensive investment options. 401(k) plans cost money to run, so it’s rare that a 401(k) is actually cheaper than investing in an IRA or brokerage account on your own. But sometimes a company is large enough and has enough bargaining power that it provides better investments than you can find elsewhere.

When my husband worked at Hewlett Packard, this was the case. (We eventually rolled his 401(k) over to an IRA simply to simplify the administration of our finances. From an investment-choice perspective, his 401(k) was still slightly better.)

5. Roth goodness. A 401(k) can help you build up your balance of Roth money in two ways. (It’s really good to have some Roth money in your retirement bucket. If you’re uncertain why it’s so good, here’s a primer.)
   • You aren’t allowed to contribute to a Roth IRA if you make over $135k (single)/$199k (couple). There is no income limit on Roth 401(k)s. You could make $200k as a single person and still contribute to a Roth 401(k). So, if your 401(k) offers a Roth option and you make a high income, this is one of your few ways of getting money into a Roth account. And it’s an easy way, at that!
   • Some 401(k) plans allow after-tax contributions to the 401(k). If you take advantage, you can “supersize” your Roth contribution every year—up to a maximum of $55k in 2018—way beyond the usual IRA limit of $5500 or even the 401(k) limit of $18,500. I don’t know of any other way to get so much money into a Roth account each year.

Why You Should Not Use Your 401(k)

What I compiled above is a pretty compelling list of reasons to use a 401(k), regardless of match. But let’s consider a few (and I emphasize “few”) other reasons you might not want to use your 401(k) if you don’t have a match, or to not put any money in it beyond the matching amount.

I have yet to see a large tech company that doesn’t give any match. I have seen this occasionally in startups, where the company provides a retirement plan (maybe a 401(k), maybe a SIMPLE IRA) but doesn’t provide any matching contributions. But it does happen!

I’ve previously written about what to do if your 401(k) is generally crappy (and not having a match is one aspect of a crappy 401(k)). A couple others:

1. It’s expensive, both the plan itself and the individual investments. It does cost money to provide a 401(k) plan, so some expenses are okay. But if your investment options cost, say, 1% (the “annual expense ratio”) or more, that’s just stupid high. (Again, there is no rule that says “$x or y% is too expensive!” So, this 1% is ballpark-ish.) You can buy index funds at Vanguard for under 0.1%, target-retirement funds for under 0.2%, and even their actively managed mutual funds often below 0.4%.
2. The user interface and customer service are crap. You just don’t want your money stored behind a wall of incompetence, unusable design, and poor service. You already know how frustrating it is to use a poorly designed website or get stuck in a voicemail jail for doing something as low-stakes as buying clothes. (And for sure, it is one of my great pleasures to walk through a 401(k) website with one of my UX or design clients, and have them yell and point excitedly when they see all manner of crappy design.) You should have much higher standards for the company that is holding your retirement savings.

But also remember, you’re likely not going to be at this job forever, or even for very long, and when you move on, you can roll this 401(k) into an IRA and get out from under all this crap.

Do you want help figuring out how much to contribute to your 401(k) and how to invest it? Reach out to me at  or schedule a free consultation.

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