Introduction

The Question at Hand

  • Is it worth contributing to a 401(k) when your employer doesn’t offer a match?

Purpose of This Guide

  • Break down pros and cons.

  • Help Pennsylvania residents (and U.S. readers) make an informed decision.

Understanding a 401(k) Plan

What Is a 401(k)?

  • Employer-sponsored retirement savings account.

  • Allows contributions from your paycheck before taxes.

Tax Advantages

  • Contributions reduce taxable income for the year.

  • Investments grow tax-deferred until retirement.

Automated Savings

  • Payroll deductions create consistent savings.

  • Encourages retirement-saving habits early.

Pros of Contributing Without an Employer Match

Compounding Growth

  • Money grows over time through compound interest.

  • Starting early maximizes retirement savings.

Tax Benefits

  • Pre-tax contributions lower taxable income.

  • Withdrawals in retirement taxed at potentially lower future rate.

Access to Investment Options

  • 401(k) plans often include mutual funds, target-date funds, and diversified options.

  • Offers professional management and simplified investing.

Cons of Contributing Without a Match

Opportunity Cost

  • Contributions could be invested elsewhere (IRA or taxable accounts).

Fees

  • Administrative or fund management fees may apply.

  • Compare with other retirement options in Pennsylvania or your state.

Limited Flexibility

  • Funds typically inaccessible before age 59½ without penalties.

Alternative Retirement Options

Roth IRA

  • After-tax contributions grow tax-free.

  • Greater investment flexibility than many 401(k) plans.

Traditional IRA

  • Broader investment choices.

  • Contributions may be tax-deductible depending on income.

Health Savings Account (HSA)

  • Available with high-deductible health plans.

  • Can serve as a tax-advantaged retirement account.

Tips for Pennsylvania Residents

State Tax Considerations

  • Pennsylvania taxes 401(k) withdrawals at a flat 3.07%.

  • Typically lower than federal taxes—important for retirement planning.

Local Investment Resources

  • Work with Pennsylvania financial advisors familiar with state-specific rules.

  • Explore programs to supplement retirement savings locally.

Final Thoughts

Why Contributing Still Makes Sense

  • Tax benefits and compounding growth make contributions worthwhile.

  • Starting early is key to maximizing retirement savings.

Consider Alternatives

  • Explore IRAs or HSAs depending on financial goals and flexibility needs.

Action Step

  • Start contributing now, even without a match—small amounts today can make a big difference in retirement.

Need Help With Your 401(k)?

Make an Appointment With One of Our Financial Advisors.