Five Options For a Lousy 401k Plan

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If you have a lousy 401k it may feel like you can't make headway with retirement planning. There are other options that can grow your retirement savings.

Please enjoy this post from my good friend Roger from The Chicago Financial Planner as I recover from my trip to Vegas…

Many folks have made saving for retirement a priority for 2014 and beyond and this is a great New Year’s resolution.  One of the best means of saving and investing for your retirement is your employer’s 401(k) plan, if one is offered. What if your company offers a lousy plan?  Here are some alternatives to consider.

What Constitutes a Lousy 401(k) Plan?


Here four typical characteristics of lousy plans:

  • An investment menu consisting of proprietary mutual funds
  • Single fund family investment menus
  • Expensive share classes
  • A group annuity “wrapper” around the plan

Option 1: Use the Best Funds in the Plan


Even the worst plans usually offer a few decent investment options. Focus your contribution in these few investment choices and use investment dollars outside of the plan to complete your portfolio’s overall asset allocation.

Option 2: Company Match


Even with the worst of plans you will generally want to contribute at least enough to receive the full company match. If your plan offers to match half of all contributions up to 6 percent of your salary, that’s an extra 3 percent contribution from the company, which gives you an instant 50 percent “return” on your money. That’s hard to beat.

Option 3: Individual Retirement Accounts (IRAs)


Anyone can contribute $5,500 ($6,500 if you’re age 50 or over) to an IRA for 2013 and for 2014. The deductibility of a traditional IRA contribution will depend upon your income and whether you are covered by an employer’s retirement plan.  Likewise, with a Roth IRA there are income ceilings that determine whether you can make a Roth contribution.  A third alternative is a non-deductible Traditional IRA contribution.  In this case while the contribution is made with after-tax dollars, your investments in the account grow tax-deferred. Note this version of the IRA requires more careful record keeping due to the tax rules upon withdrawal.

Option 4: Self-Employed Retirement Plans


Do you run a business on the side? If the business is generating income, consider starting a retirement plan. Among the options to consider are a SIMPLE, a SEP IRA, and a Solo 401(k).  Remember that any overall contribution limits will apply to your company retirement plan and your self-employed retirement plan combined.

Option 5: Consider Your Spouse’s Plan


If you are married and your spouse’s employer offers a 401(k) or similar retirement plan, check out that plan to see if it offers better investment options with lower costs.  Perhaps he/she works for a larger organization and has access to low cost institutional-style mutual funds.

In this case it would make sense to contribute the maximum you can afford to this plan to take advantage of these options.  You would then want to contribute at least enough to your 401(k) in order to get the maximum match if one is offered.  After that, depending upon your situation, you might consider an IRA as discussed above, or other options such as a self-employed retirement plan (if applicable to your situation).

If you have a lousy 401k it may feel like you can't make headway with retirement planning. There are other options that can grow your retirement savings.

Other Retirement Savings Options


Beyond a retirement plan you can always save and invest via taxable investment accounts at a brokerage, mutual fund company, etc.  While you won’t get the tax deferrals available with most retirement plan options, this is still a solid way to accumulate money for retirement and other financial goals.  You might also consider a variable annuity, but be very, very careful here to find one that has low costs and no surrender charges.  This will exclude most, if not all annuity products sold by brokers and registered reps.

A 401(k) plan can be a great savings option for you.  However you will want to be aware of other options in the event that your employer’s plan is sub-par or in the event that you have the ability to save amounts over and above what is allowed for the 401k.

How is your 401(k) plan at work? Is your employer doing what they need to be in order to make sure it’s not lousy?


Roger Wohlner, CFP® is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger’s popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.


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John is the founder of Frugal Rules, a dad, husband and veteran of the financial services industry whose writing has been featured in Forbes, CNBC, Yahoo Finance and more.

Passionate about helping people learn from his mistakes, John shares financial tools and tips to help you enjoy the freedom that comes from living frugally. One of his favorite tools is Personal Capital , which he used to plan for retirement and keep track of his finances in less than 15 minutes each month.

Another one of John's passions is helping people save $80 per month by axing their expensive cable subscriptions and replacing them with more affordable ones, like Hulu with Live TV.


  • Great advice to do SIMPLE or SEP IRA if you have a side business. I’m so grateful to have decent 401k options so I get the free money from my employer!

  • You really can’t beat the employer match. I feel like I don’t have that many options in my 401k, but it’s still worth putting in at least as much as my employer is willing to match.

  • I’ve never had an employer 401k myself, but I’ve seen some bad ones from my friends. Like you say, there’s usually at least 1-2 good options that you can focus on. It may not give you the absolutely ideal asset allocation, but it will probably beat paying the fees on the other options.

  • Liz says:

    I participate in my employer’s 401k and am thankful we get a 6% match. That 6% really adds up. I also keep a taxable brokerage account as well. We don’t keep a lot of money in there but we consider it the backup to the emergency cash fund.

  • I just opened a solo 401k after selling my optometry practice. The plan I had there and the new one are both with Vanguard, and I’ve been really happy with their fees and service.

  • My wife has a really bad 401K plan. But, I was abler to find a couple low cost funds to invest in. She maxes it out and then we put additional money into her IRA to complete the asset allocation that we need.

  • Higher 401k fees usually pertain to small companies because of the size of the 401k. I would encourage all employees to speak up if they have a lousy 401k. No one should be stuck especially when the companies are making the employees take all the risk.

  • No company match in my husband’s 401k. That is a real bummer!

  • My husband’s 401k has really lousy investment options. We opted for the best one of the lot, but it still has an expense rate we’re not happy with. But his company matches up to 3% of his salary, so we’re contributing just to get that match. 100% return on our investment!

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