Submitted by Maximus15637 t3_1097kfs in personalfinance
So I recently crossed the 1 year mark with my employer and became eligible for their 401k program. Their match policy is to match 10% of whatever contributions I make without a cap. I make $52,000, so let’s say I put away $7,800 annually (15%). My employer would only contribute $780… to me that seems pretty terrible, maybe I’m wrong?
So I’ve looked through the wiki here and seen that the conventional wisdom is to contribute up to whatever my employer matches and then put the rest into a Roth IRA. But since my plan doesn’t have a limit (other than the standard $22,500 federal limit) should I even bother or just skip to the Roth IRA?
EDIT: Thank you everybody for your responses. All very helpful. Here are my takeaways.
-
My 401k plan is not very good but even so I should still take advantage of it cause at the end of the day a 10% contribution is better than nothing.
-
The way my plan is structured is fairly unusual. Most people have a plan with a full match or partial match up to a limit. A plan with a partial match and no limit (other than the federal contribution limit) is not common.
-
the advantage I get from my match structures improves the more I contribute. If I somehow managed to hit the federal limit (43% of my income - impossible) I’d get a bonus $2,250 a year.
So my question after all that is, for me there seems to be no motivation at all to invest in a ROTH IRA unless I eventually hit the annual contribution limit and still feel like investing more (unlikely). Is that a reasonable understanding?
EDIT 2: YES I’M SURE THE OFFER IS FOR 10% OF MY CONTRIBUTIONS, NOT MY SALARY.