Today I want to address the question: What happens when your 401K sucks? Have you ever had that experience on a job, had a 401K and wanted to save, but you took a look at this thing and you're like what the heck is this. Some of you have, maybe some of you haven't, but if you are in that situation I want to help you out.
I work with a lot of clients, I've seen a lot of 401K that are just ridiculously awful.
They are H.O.R.R.I.B.L.E.
I want to address that and see what we can do to fix the situation.
First, what type of things would make a 401K suck or what kind of things are we looking at here? One of the things that I see is a 401K that has very limited options. I think typically you have to have anywhere between 12 and 15 funds. That's okay, but I like to see the plans that have more funds, like 20-30 different options provided.
Another thing that could make a 401K suck could be that the investments they have, their performance is just horrendous. When you look at the 5-year or 10-year numbers they are just God-awful. There is nothing about it that is even attractive for you to put your own money into it. A
Another bad trait that we'll see is having high fees. Typically 401Ks should have a low cost, but I have seen a lot of providers have very high fees, high hidden fees that really eat away at your return.
Lastly, any type of 401K with an annuity product that has some type of surrender charge. On another video I had a financial rant that talked about having annuities inside 401K products where I had a client that had to pay a very sizeable surrender charge to get her money out whenever she left her job. Those are the different factors that come into having a 401K that sucks.
Now that we've identified what makes a 401K suck, what are some of the things that we can get around? One of the tough things is if you have a 401K that has a match meaning your company is providing free money. It is hard to get away from that. I would actually advise you to take advantage of the match, get the free money. If the 401K is that horrible, put as much in to get your free money so at least you've got that return. That is pretty much a guaranteed return by your employer matching on your behalf.
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Don't Forget the IRA
If there is no match and therefore you have to do something because you just can't do it, the other options you have of course are to do the traditional or Roth IRA. You could put $5000 into a traditional or a Roth. You can't do both, but you can do $5000 to either one or a combination of the two.
With the Roth you get tax-free money at retirement. With traditional you'll get a write off just like you would investing in the 401K so that is an option. Like I said, you can only do $5000, but let's say you have a spouse. You can do $5000 on their behalf as well. That's getting you closer to the $16,500 that you can put into 401K. That's something to consider.
Another option you can do is just do a regular individual investment account or joint account if you're married. You don't get any tax benefits by doing that but it does allow you to take charge of your money, invest into investment funds, stocks, and bonds that you're more comfortable with and have more control of. I'm a man that loves control. I like to be in charge of things and not to have anything that restricts me from doing the things I want to do. The IRAs and the investment accounts do just that.
Another option, and this might be a little bit out of your comfort zone but, is to find some sort of way to have self employment activity, therefore you have self-employment income. By jumping over the reins of being self employed, you can now implement your own retirement account, basically set up your own 401K for your business.
You can do a simple IRA, a SEP IRA, or a solo 401K. What those give you are the same benefits as the 401K does, but now you have the control that I was just talking about. Now you have control to get away from high-fee mutual funds, get away from funds that have lack-luster performance. You get away from all that stuff. It gives you that control that you don't get in having a 401K that sucks.
If you have any more questions regarding your 401K please hit me at the blog, goodfinancialcents.com and I will be glad to answer and help you out the best I can. Also, be sure to check us out on Facebook, be sure to give us the big thumbs up, give us two if you can. We appreciate it and we'll talk to you soon. Take care.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.