It's important to do what you can to save well for retirement. Without a decent-size nest egg, you might be forced to largely get by on Social Security once you stop working. And given that those benefits will only replace about 40% of a typical earner's pre-retirement wages today, that's not a particularly good plan for your future self.
You might have access to a 401(k) plan through your employer, and that plan might not be much to write home about.
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Some 401(k)s come with a generous employer match, reasonable fees, and a pretty nice range of funds to invest in. Your employer's plan, however, might offer no match whatsoever, higher fees, and limited investment choices.
In that situation, saving for retirement in an IRA could be a better bet. But if the following circumstance applies to you, you might want to stick to an employer 401(k) that isn't so wonderful.
When you don't trust yourself to stay on track
One of the nice things about 401(k) plans is that contributions are taken as payroll deductions. If you sign up to put $6,000 into your 401(k) in even installments, you'll have $500 a month taken out of your paychecks off the bat before you get a chance to spend that money. And you might need forced savings to actually contribute to a retirement plan consistently.
On the other hand, with an IRA, it's on you to write your savings a check every month or transfer money into your account. And while many IRAs allow you to set up an automatic transfer from a bank account, some don't.
Even if yours does, an automatic transfer from your checking account to your IRA is pretty easy to undo. With a 401(k) plan, it's harder to stop contributing. You might have to fill out paperwork with your benefits department or go through a process that takes time. That alone might deter you from going that route.
You can make the most of a less-than-stellar plan
Clearly, there's a hidden benefit to sticking with a 401(k) that isn't so great. If you intend to go this route, at least for the time being, there may be options for making the most of your employer's plan.
Some of the fees associated with your 401(k) might stem from the administrative side of that plan. Those are fees you might not be able to control.
However, the investments you choose for your 401(k) will also determine what fees you're charged. And if you stick to lower-cost investments, like index funds, which you'll commonly find in a 401(k), you could find that you're able to minimize your fees to some degree.
But if your employer's 401(k) plan is truly lousy, then an IRA might be a better bet even if you're forced to take a more active role in making contributions. In that case, find a plan with an automatic transfer option and promise yourself you'll stick to it.
If you don't, you're the one who's apt to suffer financially later in life, so use that as motivation to keep funding that account if your employer's 401(k) just doesn't work for you.
