Should I Participate in a 401(k) Without a Match?

Even with no employer match, a retirement account has savings advantages

One key advantage of 401(k) plans is that employers often provide a matching contribution. Employer matches represent a guaranteed return on your retirement investment, and it almost always makes sense to maximize them.

If your employer doesn’t offer any match, you may be wondering if you should still participate. The short answer in most cases is that it does still make sense to contribute to a 401(k) because it can offer significant tax advantages. In this article, we’ll look at why participating in a 401(k) plan can still make financial sense and when it may not.

Key Takeaways

  • Many 401(k) plans offer employer matching contributions, but some don’t. 
  • Even without an employer match, you might want to participate in a 401(k) because of its tax advantages.
  • Traditional 401(k) plans provide an up-front tax deduction plus tax deferral on your account’s earnings until you take the money out.
  • Roth 401(k)s offer no immediate tax deduction, but your withdrawals can be tax free if you meet the requirements.
  • However, if your employer’s 401(k) plan has high fees or limited investment choices, you may want to invest your money in an individual retirement account (IRA) instead.

When 401(k) Plans Without a Match Are Worthwhile

The employer matching contribution that is part of many 401(k) plans is an attractive benefit. In some cases, it is equivalent to your employer guaranteeing a 100% return on your investment. However, it’s not the only advantage that 401(k) plans have to offer.

With a traditional 401(k), your contributions to the plan are tax deductible and the account’s earnings over the years will be tax deferred. You won’t owe taxes on any of that money until you withdraw it, usually in retirement. If you contribute to a Roth 401(k), you won’t receive any up-front tax deduction, but all of your withdrawals will be tax-free if you meet certain rules.

These tax benefits are the same for every standard 401(k) plan, whether your employer makes a matching contribution or not. If you are going to be in a lower income tax bracket in retirement than you are now, as is often the case, then putting your money in a 401(k) could save you thousands of dollars a year in taxes.

Of course, there are other ways of saving for retirement besides a 401(k). A traditional individual retirement account (IRA) works much like a traditional 401(k) when it comes to taxation, and it might offer you a broader range of options for investing your money. (Similarly, a Roth IRA works much like a Roth 401(k).)

However, IRAs have much lower annual contribution limits. Consider your options regarding the following contribution limits:

2022 and 2023 Common Retirement Account Contribution Limits
 Retirement Account 2022 Contribution Limit 2023 Contribution Limit
IRA $6,000  $6,500
IRA Catch-Up Contribution $1,000 $1,000
401(k) $20,500 $22,500
401(k) Catch-Up Contribution $6,500 $7,500

Even if your employer matches your 401(k) contributions, that money doesn’t belong to you until it has vested according to the rules of your plan. Most vesting schedules last several years.

When 401(k) Plans Without a Match Don’t Make Sense

While it generally makes sense to save for retirement through your 401(k) even if your employer won’t match your contributions, there are a couple of exceptions.

The first exception is if the 401(k) that your company offers is not ideal for you. Some 401(k) plans come with high fees. Others have extremely limited investment options. Others may also be incompetently run. Even these less ideal plans might be worth participating in if they have a really good employer match.

Still, without a match, you may consider investing in an IRA, a mutual fund, or a brokerage account. You won’t get the same tax breaks but will have more low-fee investment choices. If you value flexibility, lower fees, and more funds to choose from, 401(k) plans may not make sense in this situation.

The second exception is if you are not earning enough income. Saving for retirement takes money away from building an emergency fund, paying current bills, and living life today. Saving for retirement is a luxury that many individuals just starting out their careers simply can't afford.

Last, some people may choose not to contribution to a 401(k) if they do not plan on staying with the company long-term. In this situation, especially if the individual does not plan on contributing more than the IRA limit, they may be better off putting retirement funds into an IRA instead. They would receive similar tax benefits, and they would be able to avoid the hassle of transferring an old 401(k) when they leave.

What Is a Good Employer Match?

In a 2022 survey by Vanguard, the average value of employer matching contributions was 4.4% of pay. Most employers offered 3% to 6%.

Can an Employer Stop Its 401(k) Match?

With a traditional 401(k) plan—the type typically offered at larger companies—the employer is free to change or even eliminate its match from year to year. However, SIMPLE (Savings Incentive Match Plan for Employees) 401(k) plans and safe harbor 401(k) plans—found most often in small businesses—must provide either an employer match or non-elective contributions. Non-elective contributions are the kind made by employers on behalf of workers who don’t contribute to the plan on their own.

How Does Vesting Work in a 401(k) Plan?

The money that you contribute to a 401(k) plan is immediately vested—meaning that it belongs to you from day one. However, depending on the terms of your plan, any contributions that your employer makes may not vest for several years (cliff vesting) or will vest partially each year until you are fully vested (graduated vesting).

When you check your 401(k) account, you will likely see your employer's contributions even if you have not fully vested. Should you leave the company before your vesting period has finished, you will forfeit all or a portion of the match.

For example, companies with a straight-line 5-year vesting schedule will release 20% of their contribution to the employee each year. Should the employee leave after three years, they will only receive 60% of all employer contributions.

The Bottom Line

Many 401(k) plans, but not all of them, offer employer matching contributions. Even if your employer doesn’t provide a match, you may want to participate in the plan because of its tax advantages. An exception might be if your 401(k) plan has unusually high fees or poor investment choices, or if you believe it to be badly run.

Article Sources
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  1. Internal Revenue Service. “Roth Comparison Chart.”

  2. Internal Revenue Service. "401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500."

  3. Internal Revenue Service. “Retirement Topics — Vesting.”

  4. Vanguard Institutional. “How America Saves 2022,” Page 18 (Page 20 of PDF).

  5. Internal Revenue Service. “Operating a 401(k) Plan.”

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