I just started a new job a few months ago and my employer does not give a match till year 3 (then matches quite generously). I currently contribute a small amount to a Roth IRA.My question is- I am (and have been) saving for a house down payment. I would like to buy by the end of the year. Would it be more beneficial for me to save the money into my house fund for the next several months instead of contributing to this 401k with no match? Or should I just start the 401k but contribute a small amount, say 3%?
This is mostly a market timing question. It is great that you are planning to save/invest the funds. Deciding which is better is a high class question.If your house downpayment is well funded already, putting funds into the 401k becomes more attractive. If it is short, by all means the downpayment should come first.Otherwise, it becomes a question of which will pay bigger returns: real estate or stock market. Stock market right now is looking very good, and if that continues, its a great time to buy in. But no one knows for sure. So its almost a matter of flipping a coin.Fund your retirement account as soon as you can. Giving your funds more time to grow gives you a better chance of assembling an adequate retirement fund.
A few thoughts......don't view a house as an investment. You live, eat, sleep, etc., there and nothing more. When it comes time to sell, if you get your money back, fine. If you make a "profit", great....fully fund your Roth IRA first. This is the one thing you have total control over. If you delay saving, its hard to play catch up. There used to be an article here showing what happens. First person started IRA and funded it the first 10 years then quit. Second person didn't start until 10 years later. At age 65, the first person had more money even though the second person put in more money. Compounding is hard to beat....401k no match vs. house down payment. Toss up. Do you have 20% down payment for your price range? Its getting tougher to get loans so the greater the down payment the better you look and the better rate you'll get. If you have the down payment, then contribute to the 401k....check to see when the 3 year count down starts. Is it hire date or when you start contributing to 401k. Would hate to do nothing for 2.99 years only to find out that you still have 3 years to get match.JLC
Fund your Roth.Withdrawal of contributions are tax free at any time and withdrawals (of interest/earnings) for 1st time home purchase are tax free as well (up to $10,000).
Due to the additional expenses involved, I wouldn't fund a 401(k) when there is no match. Instead, fully fund either your Roth IRA, or if your AGI is no too high, a deductible traditional IRA.Later this year, 401(k) plans will have to start informing employees of their portion of all 401(k) expenses. I think many are going to be very surprised at what they are paying.As to your house, assuming this is a conforming FNMA loan, if aren't able to pay at least 20% down, the lender will likely require you to carry Private Mortgage Insurance, although some consider PMI not such a bad thing, as they get to keep their down payment invested. So you'd have to figure which would be better for your situation.BruceM
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