February 2, 2015 in Retirement

My wife’s employer has a lousy 401(k)

Dear Dr. Don,

My wife recently became eligible for her firm’s 401(k) plan. The plan looks much more expensive than my current 401(k) plan and other retirement plans that she had in the past. Should she still participate in her 401(k) plan at work even if it has high expenses and fees? The firm doesn’t offer any matching contributions.

Is there ever a reason not to participate in an employer’s 401(k)? Does she have any other good options?

My wife is in her mid-40s and we’re middle class. Thanks for any guidance you can provide.

Thank you,

— Dan Deliberates

Dear Dan,

Without a company match, the most compelling reason to contribute to a 401(k) plan versus a traditional or Roth IRA is the 401(k) plan’s higher contribution limits. If account fees and expenses are high, the employee might choose to split retirement contributions between the 401(k) and an IRA.

Because she’s eligible to participate in the firm’s 401(k) plan, she may be limited in her ability to make tax-deductible contributions to a traditional IRA. Even if she can’t make tax-deductible contributions to the traditional IRA, she may still make after-tax contributions to a Roth IRA.

There are income limitations on contributions to a Roth IRA. Funds held in a traditional IRA, however, may be converted to a Roth IRA, regardless of income levels.

The 401(k) plan’s fiduciaries have responsibility concerning the 401(k) plan’s fees and expenses. These folks help administer and manage the plan. Participants, such as your wife, can certainly try to influence decisions made on fees and investment choices. Plan participants have the right to see the Summary Plan Description and periodic Individual Benefit Statements. This information will tell you the names of a plan’s fiduciaries, who are the people to contact for further questions or comments.

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