Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?

It pays to put enough money into your 401(k) to get your full employer match. But should you fund your account beyond that point? Read on to find out.

Should You Fund Your 401(k) Beyond Your Employer Match, or Move Over to an IRA?

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One of the benefits of saving for retirement in a 401(k) is potentially getting access to money in that account that's put in by your employer. Vanguard reports that across its retirement plans, 95% of employers contribute to their employees' 401(k)s in some way.

If you're entitled to an employer match in your 401(k) plan, it pays to do what you can to snag that free money in full. So if your employer will match 100% of up to $3,000 in contributions, the minimum amount you should aim to put into your account is -- you guessed it -- $3,000.

But what should you do once you've gotten your match in full? Does it pay to keep funding your 401(k)? Or are you better off with an IRA?

It's a matter of what your 401(k) has to offer

There's a big benefit that IRAs have over 401(k)s. IRAs generally let you invest your retirement funds in individual stocks. With a 401(k), on the other hand, you're generally limited to a bunch of different funds, like mutual funds and index funds.

The reason being limited to funds is problematic is twofold. First, when you put money into any given fund, you don't get complete control over your investment. Also, certain funds -- notably mutual funds and target date funds, which are popular in 401(k)s -- are notorious for charging high fees. So sticking with a 401(k) beyond your employer match could mean being forced to invest in a manner that doesn't suit you, and in a manner that costs you more in the form of higher fees.

There's the convenience factor to think about, too

If you're a savvy investor, you might prefer opening an IRA with a stock broker for your long-term savings so that you can pick your stocks individually. But if you're someone who's not so inclined to do that, then you may find that the choices offered by your 401(k) plan are perfectly suitable.

It's very common to find index funds as an investment option in a 401(k). And because index funds are passively managed (unlike mutual funds, which employ actual people to pick investments), their fees tend to be pretty low.

Plus, buying into a broad market index fund, like an S&P 500 index fund, is a good way to instantly diversify your portfolio. With individual stocks, you have to make an effort to choose companies across a range of industries. So building a portfolio for your IRA might require time and effort that you don't really have.

As such, you may find that your 401(k) is the right place to save for retirement even once you've snagged your complete employer match. And remember, by putting all of your savings in the same place, you may find that it's easier to keep track of your progress and assets. So as long as you're not losing an exorbitant amount of money to fees, sticking to a 401(k) alone isn't a bad idea if you're okay with being a bit more of a hands-off investor.

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