Waffling on the 401(k)

Earlier this year I decided to stop contributing to my company’s 401(k) plan. At the time, my plan made sense (at least in my head): I’d take the extra money ($36.92 after taxes) each week and put it towards my student loan. Then by the end of 2014, my student loan would be paid off! My employer contributes 6% every week, regardless of whether or not I contribute, so I’m not losing any “free money”. And I’m already 100% vested in the program. It would all work out swimmingly!

Except it’s mid-November now, and I still have $5,000 to go before my student loan is paid off. An expensive vacation, job loss, and life in general managed to derail my original plan. The last couple of months have had me thinking that maybe it would be a better idea to start contributing to my 401(k) plan again. Sure, the extra money each week was helpful. And it’s not like I’m blowing it, or using it irresponsibly. But that $36.92 every week added almost $53 dollars a week to my 401(k) balance. Add in interest, and dividends… Wouldn’t it be better in the long run to be socking that money away?

I was just about ready to sign on the dotted line when our company’s 401(k) plan got audited. And, as it turns out, there was a problem. It’s probably been close to 2 years since our company’s 401(k) was merged with our parent company’s plan. Since that time, our company has had very little access to the plan. Sure, each individual can check their account information and make changes online. But all the internal checks that are supposed to take place no longer happen within our company; They’re all done by our parent company. Or, so we thought. But as we were preparing for our fiscal year-end, a long over-do audit turned up missing contributions. One week’s worth of employee contributions were paid into the plan, but never credited to the employee’s accounts. Our parent company looked into their accounts and realized they were missing employee contributions as well, on totally different weeks than us. And their parent company? Same thing!

I have to admit, I’ve been a little psycho about checking my 401(k) balances most of this year. I’m constantly recalculating my net worth, and as part of that, I’m keeping close tabs on how my retirement accounts are doing. The market has been pretty all over the place this year, so I’d gotten into the habit of checking each month to see if my employer’s contribution had been added, instead of just checking the balance. But I’m only getting the monthly employer contribution right now. Back when I was contributing to the plan, I was a little less diligent about checking my own contributions each week. And apparently, so is everyone else; Of the hundreds of people participating in the plan, across multiple companies, no one noticed the missing contributions!

Apparently there is one woman from the company that administers our plan who is responsible for crediting each individual’s account and making the purchases of shares. She laughed it off as a minor oversight, updated the accounts, and moved along as normal. The market was low when the error was corrected, so people were getting more bang for their buck, after all! Very few people know that any of this happened. I wasn’t personally affected, since it was only happening with employee contributions, and I wasn’t contributing. The rest of the people who knew were all in high level management positions, and didn’t feel like their position enabled them to complain. Everyone was waiting for an employee to notice and raise the red flag. But no one did.

All of this makes me a little apprehensive about contributing to the plan again. Sure, I could join the plan, and just make sure I’m really diligent about checking that my contributions are being credited to my account each week. But I don’t really trust now that everything is kosher with our 401(k) plan. What about the things I can’t see, like management fees? Am I just being paranoid? Finding excuses not to contribute? Or is this a valid concern?

Part of me says that I should keep my money out of the plan, for now. If I feel like contributing to retirement is a priority right now, I could always setup an IRA with Vanguard. I want to do that eventually anyways, so I can roll over my Roth from Edward Jones. But then, I’d need a chunk of cash to get things started. I don’t really want to take money from somewhere else to put towards an IRA. And I’m bad about the whole “divide and conquer” approach to savings. Contributing to the 401(k) would be so much easier and more effective. But it also would make me feel kind of uneasy.

What would you do in my situation? Contribute to the 401(k)? Set aside money for an IRA? Continue to prioritize debt repayment?

– Cindy W.

Comments

  1. It seems like you should be contributing to *some* kind of tax-advantaged account, but maybe your own contributions would be better made to an IRA if you’re not feeling good about your company’s 401(k). Why not just roll over your IRA to Vanguard (which won’t take very long) and start putting regular contributions into it?

    At our advanced age [grin] it seems important to be keeping on top of retirement savings, no matter what else is going on. I feel like we’re at a critical moment; I didn’t, for various reasons, start putting money away in my early 20s, when it would have had 40 years to grow, but anything I do right now, at 35-almost-36 (birthday in January) has 30 years to grow. Later contributions just won’t mean as much, so I feel very motivated to do as much as I can about retirement right now.

    1. I definitely agree with how important it is to be saving sooner. Especially now that I’m in my *gasp* late 30’s. I guess that’s why it’s weighing on my mind so much right now.

      My biggest issue with starting an IRA at Vanguard is being able to meet their minimums. My current Roth only has around $1,000 in it. You can open an IRA at Vanguard for $1,000, but only with one of their Target Date Funds. To me, those plans just aren’t aggressive enough. I’m not planning on touching the funds anytime soon, so I don’t mind taking on a lot more risk. To be able to buy the Index Funds I want, I’d have to open an account with at least $3,000. In order to do that, I’d need to change how I’m prioritizing my “extra” cash for a bit.

      Maybe I’ll keep stashing away funds in my emergency fund, then revisit the question around tax time. I also need to revisit the Roth vs. Traditional question. So many choices!

      1. So, for informational purposes, I just made a decision about my Roth IRA. I started it last spring with a Target Date Fund for exactly the reason you mention — I didn’t have $3000. But now I have almost $5000 in that account. Yesterday I exchanged the Target Date shares for Total Stock Market Index shares; I agree with you that I want to be more aggressive now.

        One thing you could do, then, is to roll your IRA over to Vanguard, buy the target date fund, and then exchange as soon as you can hit $3000 (which if you’re making regular $200 contributions won’t take that long). If you’re using it as a substitute for 401(k) contributions, you might want to go traditional rather than Roth, though, since you’re looking to use “pre-tax” income, so I guess that might throw a wrench in that work.

        I am…not a financial professional…. 🙂 Just another potential option.

        1. I think I’m definitely over complicating things in my head! Was it pretty easy to switch the funds over? That’s a worry of mine, that it’s going to be complicated to switch from one fund to another. Although, I’ve done it multiple times in my 401(k) plan with no issue, so I’m not sure why I’m worried!

          1. Oh, it was super easy. Just hit “exchange” and picked out the fund I wanted instead. Took two minutes, then twenty for me to be terrified I’d actually bought the wrong thing (I didn’t; I’m just paranoid that way.)

  2. can you afford $200 a month? I opened one at Fidelity – they waive the fee if you do an auto deposit of 200 a month. some folks do that till they build up 3k and then transfer to vanguard.

    1. I could definitely do $200 a month. I already have a Roth IRA with Edward Jones though (which I haven’t contributed to in many years). I’d hate to open another IRA with Fidelity, and then have to mess with moving 2 accounts over to Vanguard. I guess I could always pick up contributing to my account at Edward Jones, and then switch it over to Vanguard once it hits $3,000?

      I have a lot of options. Maybe that’s my problem; I have too many options, and I’m not sure what my priorities should be!

  3. I too backed off on my retirement contributions this year and I definitely struggle with deciding between the snowball method and the ‘a little bit in every pot’ method. I tend to go with the snowball method when I feel like I need the little victories to help move me forward. Do you need to see progress sooner, or are you comfortable seeing a little bit of progress in a lot of areas?

    1. I think I’m a weird mix of the two. I want the big victories, with the big progress. But, especially right now, I feel like I have so many different things vying for my attention! I want to hurry up and pay down my debt, or hurry up and build up an emergency fund, or hurry up and sell the house, or contribute more to retirement. And then things come up, like vacations, or the boyfriend losing his job, or needing to buy a new mattress. And I should be planning for all of these things, but I hate having little bits of money all over the place, and never feeling like I’m getting anywhere. I find myself doing kind of a “distracted snowball”, where I focus all of my attention on one thing, until something else becomes my new priority. I guess it’s kind of working okay?

      1. ‘distracted snowball’ I love that! It sounds like your overall direction of momentum is foreward, not deeper into debt. You’re ahead compared to last year…so I suppose ultimately, all of your options are good ones!

        1. I’m hoping not to take on any new debt, at least not anytime soon. Someday I foresee a mortgage, or something like that. But hopefully by that point we’ll have much less debt than we have now, and it won’t be a big deal!

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