Should You Max Out Your 401k Without a Match?
Recently, we started working with Blythe, a 40-year-old executive at Nebula Cloud Labs. She earns a great salary, the company is growing, but there’s no 401k match.
Her question: “Should I still max out my 401k if my employer doesn’t match?”
Honestly? A few years ago, Nic would have said “Yes!” without blinking.
The tax considerations: Pre-tax contributions lower your taxable income today. Roth contributions give you tax-free income in retirement. Hard to argue with either.
However…
The match has always been the #1 reason to contribute to a 401k. That’s free money, and nothing beats free money.
But today, technology and low-cost index investing have made taxable brokerage accounts far more competitive than they used to be. Years ago, you’d expect to lose 1 to 1.5% annually to tax drag inside a brokerage account, things like capital gains distributions, dividends, and interest eating into your returns. Now, with tax-efficient funds and direct indexing tools, that drag is much smaller. The gap between a 401k and a brokerage account has narrowed significantly.
Brokerage accounts also come with something retirement accounts can’t offer: Flexibility. You can access the money anytime, for any reason, without penalties or restrictions. That matters more than people realize, especially for someone who might want to explore other opportunities earlier than later.
Here’s my advice to Blythe: “Don’t think in either/or terms. I want us to build substantial accounts in all three buckets:
- Pre-tax (traditional 401k) for the tax deduction today
- Roth for tax-free growth and withdrawals later
- Brokerage for flexibility and access”
The right balance between each depends on her income, her timeline, how long she plans to stay with this employer, and honestly, how entrepreneurial she feels about her future. The younger you are, and the more you value future financial flexibility over tax deferral, the stronger the case for leaning into the brokerage account, even if it means giving up some tax benefits in the short term.
For Blythe, that’s exactly the direction we’re heading.
No employer match does not mean 🚫 401k. Rather it means your plan deserves to weigh all the options.
Stay disciplined. Work the plan.
–Nic
Please note – names, locations, and dollar amounts have been changed to protect all of those involved.
