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12% 401(k) Contribution - What to do? [USA] (kbin.social)

submitted 10 months ago* (last edited 10 months ago) by lqdrchrd@kbin.social to c/personalfinance@lemmy.ml

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Hi everyone, I recently landed a new job where the base 401(k) contribution for all FTEs is 12% of your salary. This is regardless of your contribution, with no additional match. I realize that this is unusual for most people and it is for me as well. In my last job, I got up to a 6% match so I maxed that out and didn't think on it any further.

I currently contribute an additional 5% on top of the 12% that my employer provides, but got chatting with a coworker who mentioned that they were advised to take that money and, since it was not being matched, put it into the stock market instead. I'm open to learning, but have very little knowledge of stocks, cryptocurrency, or likely any other potential option you may suggest.

For a little extra information, I am in my mid-twenties, earn mid-five-figures/year, have little saved for retirement right now, and am open to any suggestions you may have.

So, what would you do in my situation? Thanks for any replies!

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[–] givesomefucks@lemmy.world 3 points 10 months ago* (last edited 10 months ago) (2 children)

if it's too good to be true, it's probably not

12% even if you don't put any in should set off alarm bells.

Like, who is managing that 401k? Is it related to someone running your company?

How's the salary compared to similar jobs? Are you making 15% less and that's where it's coming from?

What is mid 5 digits? 50k? That means you'd be making 56k if you got it all in pay.

It's not a bad wage, but something crazy like 12% 401k no matter what is usually for stuff at least twice your salary for tax evasion reasons.

I get not wanting to put details online, but you should find a coworker who's been there a long time and ask about what's going on. If no one's been there more than a few years, that's another huge red flag

[–] mrbitterness@kbin.social 1 points 10 months ago

Most likely this is a category of 401k (or IRA) called a SEP IRA. It works to the company's tax advantage and they have the ability to force it on all employees. All employees is a requirement of this. I don't have a ton of knowledge about this, but about a decade ago I dug in to it because my wife's company did this to us at a time we really needed more flexibility on what she was contributing. I don't remember the nuances, but sadly I found it out that (at least at the time) while it seems sketchy as hell, it was legal if the company met all the requirements/followed all the rules to do this.