With tariff and economic turmoil having hit the stock market in recent days, Americans have watched their 401(k)s take a hit. Even as stocks and 401(k) balances start to inch back up, some savers may be wondering if a 401(k) is even worth it, particularly one that doesn't have a company match.
If you're thinking about saving for the long-term, above and beyond the current stock market see-sawing, then yes, a 401(k), even one without company matching funds, is still a smart choice.
401(k)s have become ubiquitous. Today, investing in a 401(k) is the norm for working Americans saving for retirement. It can be a financial lifeline later on, especially if the plan comes with a company match — money your employer wholly or partially contributes to your 401(k) account. But should you invest a part of your paycheck in a 401(k) if a company doesn’t offer a company match? Good question, and there are pros and cons no matter what you decide.
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How much you need to save to retire comfortably is all over the map. But the magic number is typically upwards of $1 million. A Northwestern Mutual’s 2024 Planning & Progress Study says you need nearly $1.5 million in the bank for a secure retirement. Another study by Schroders says employees not yet retired think they need $1.2 million socked away. Charles Schwab says you’ll have to save as much as $1.8 million.
How you get there can depend on your spending habits, saving habits, and, ultimately, what a comfortable retirement means to you. Even though a company match significantly increases the plan’s value for employees, some employers don’t offer matching, which raises the question of how valuable a 401(k) is without the extra benefit of free money.
How does an employer 401(k) match work?
A 401(k) company match is a benefit your employer offers. As you put money into your 401(k), the company matches your contributions, wholly or partially, up to a certain amount. How your company matches your investment depends on the plan.
Studies show that 94% of companies offer a 401(k) or similar defined contribution plan. Of that 94%, 84% of employers offer a 401(k) match, according to the 2024 SHRM Employee Benefits Survey. While that’s a big number, employer matching isn’t required, but is often a benefit used to attract and retain workers. In 2024, the average employer contribution match for a traditional 401(k) was 6.61%, according to SHRM. The average match for a Roth 401(k) was 6.5%.
Typically, two types of matching exist:
Partial Match — If a company offers a partial match, your employer will match your 401(k) contributions up to a certain amount of your salary. For instance, the company might offer a 50% match up to 6% of your salary. So, if you’re making $80,000, your company will match your contributions up to $2,400 that year.
Dollar-for-Dollar Match — A dollar-for-dollar match is exactly what it sounds like. You contribute a dollar, and the company kicks in a dollar. But dollar-for-dollar matching is also only good up to a certain amount. So, if your employer matches your contributions dollar-for-dollar up to 6% of your salary, and you make $80,000 a year, the company will match your 401(k) contributions up to $4,800. While, for some, that won't cover even a month's worth of retirement expenses, it is a start. And it’s free money.
Pros of maxing out a 401(k) without an employer match
Not all companies offer 401(k) matching. Some companies don’t offer 401(k) plans at all, while small business owners with fewer than 100 employees may offer Safe Harbor 401(k)s instead. Employees in non-profit organizations, public schools and colleges can contribute to 401(k)-like plans, such as a 403(b). Government workers typically have 457 plans.
The extra money from employer matching is like getting a head start on your retirement without the extra work. It’s essentially "free money" to help boost your savings, and the compound growth on that money can really add up. But even if your company plan doesn't offer matching, you can still benefit from maxing out your 401(k).
Brett Bernstein, CEO and Co-founder at XML Financial Group, agrees and says that contributing to a company 401k plan, even without a match, can be beneficial whether maxing out or not. “First off, you get to invest pre-tax. Second, you have the power of compound interest tax-deferred until you retire or have to take your required minimum distributions (RMDs). Third, you potentially have a loan provision should you need to borrow funds and repay yourself. Fourth, there may be Roth 401(k) components to utilize. The bottom line is everything should start with a well-thought-out holistic financial plan.”
Other pros include:
Savings grow tax-free
It's a tough reality for a lot of people right now. With inflation, high rent, and rising prices on essentials like food and health care, it's harder than ever to save. Despite the lack of employer matching, a 401(k) can still help grow your savings — tax-free.
Melissa Murphy Pavone, founder at Mindful Financial Partners, states that it’s a form of forced savings that can lead to significant financial benefits over time. Depending on the type of 401(k) plan your employer sets up, contributions may be tax-deferred (traditional 401(k)) or tax-free upon withdrawal (Roth 401(k)). A 401(k) can also be beneficial if it lowers your tax bracket. Besides that, dividends and capital gains never get taxed, so the government isn’t taking a slice every time you make a transaction.
Higher contribution limits
401(k) plans have higher annual contribution limits than alternative plans like IRAs, even without an employer match. You can defer up to $23,500 in 2025 with an additional $7,500 catch-up contribution if you are 50 or older. And beginning this year, the IRS has announced a super catch-up contribution limit of $11,250 for anyone 60-63.
Consistent investments
Pavone explains that you’re effectively automating your savings when you set up paycheck deductions. “This discipline ensures that you're consistently investing in your future, even when the immediate rewards aren’t apparent. It’s a form of forced savings that can lead to significant financial benefits over time.” She adds that ultimately, while every financial situation is unique, the long-term benefits of consistently contributing to your 401(k) — tax advantages, compound growth, and disciplined savings — often outweigh the short-term sacrifices.
Ready for more good news? Nearly 60% of companies with 401(k) plans now have automatic enrollment, according to a Vanguard study.
A safety net for the unexpected
Elizabeth Buffardi, CFP®, CPA, Founder & President at Crescendo Financial Planners says that even if your employer doesn't make a matching contribution to your 401k, it is still a good idea to contribute to a 401k. She adds, “It is a way to save automatically, and because you never "see" the money in the first place, you can't miss it, and maybe more importantly, you can't spend it.” Plus, the money is there if or when you need to take out a 401(k) loan. While it's true you risk jeopardizing your long-term retirement goals, in the case of an emergency, the loan can provide a much-needed safety net, and it is often quick and typically cheaper than other types of credit.
Take a hardship withdrawal, if needed
Hardship withdrawals allow you to take money out of your account for specific reasons, like purchasing your primary residence, paying for significant medical expenses or covering education costs. Hardship withdrawals are taxed. Besides that, if they are taken before age 59-½, you may be hit with a 10% early withdrawal penalty. Unlike 401(k) loans, these funds are not repaid, which can permanently reduce your 401(k) balance. Considering the long-term implications on your retirement savings, withdrawals from your 401(k) should be approached with caution.
A safeguard from creditors
Under the Employee Retirement Income Security Act (ERISA), your 401(k) is generally safeguarded from bankruptcy and creditors if you find yourself in a bind financially. This protection also extends to situations outside of bankruptcy, where 401(k)s are protected against debt-related issues and legal judgments.
Cons of maxing out a 401(k) without an employer match
Maxing out your 401(k) plan can give your retirement plans an added boost, but it may not always be the best idea if it comes without an employer match. Here’s why.
Potential fees
Fees charged by 401(k) plans can be costly and dampen investment performance. If your employer’s 401(k) plan doesn’t offer a match and also comes with high fees, you might be better off socking away your retirement funds elsewhere, like in a traditional or Roth IRA.
Fewer investment options
Some 401(k) plans might only offer a limited number of investment options or target-date funds. So, if your personal investment needs don’t match what the plan offers, maxing out your contributions may not be the best approach. Besides, the value of 401(k)s can be adversely impacted by market volatility, and traditional 401(k) withdrawals are taxed at regular income rates, which could be higher when your retirement rolls around.
Other, often better investment options
Andrew Latham, Certified Financial Planner, Supermoney.com, says that if lowering taxable income is your main reason for investing in a 401(k), consider maxing out other tax-advantaged accounts first before funding a non-matching 401(k). “A traditional IRA offers more investment choices and typically charges lower fees,” Latham adds, “and a health savings account (HSA) is even better—it comes with triple tax benefits: tax-free contributions, tax-free growth, and tax-free withdrawals for medical expenses now or in retirement.”
Tied to a specific employer
Unlike IRAs, 401(k)s are tied to your job. If you switch employers often, you'll need to roll over your 401(k) to a new employer’s plan or an IRA, which can be a hassle. If you leave before being fully vested, you may lose some benefits, so maxing out your 401(k) may not be the best plan. Also, if you have multiple plans with multiple employers, keeping track of your retirement accounts can be tricky. Another thing to consider is that you may exceed your contribution limit and not realize it. Over contributing to a 401(k) can trigger being taxed twice if you don't correct the mistake when tax day rolls around.
You have other financial goals
If you’re young, buying your first house or starting a family, maxing out your retirement savings plan may not be a financial goal to tackle right now. A 401(k) is for long-term savings and is not the best option as an emergency fund. Plus, you’ll very likely pay a penalty if you withdraw 401(k) funds before age 59-½. Latham offers this advice: “If you're struggling with bills, drowning in high-interest debt, or don’t have an emergency fund, pause before locking money away in a 401(k). Retirement accounts won’t help if you’re forced to take penalty-laden withdrawals before retirement. Focus on financial stability first.”
Claiming your full 401(k) match
Here's some good advice: If your employer offers a 401(k), investing enough to claim the full match is always best. If you don't, you're giving up free money.
The best place to start is to figure out what percentage of your income you need to contribute to get your full match. Your HR department or your plan administrator should have this information. But even if you can only manage to claim a portion of your employer’s 401(k) match, you still gain the benefits of having a nest egg when you retire.
Bottom line
You're right to consider whether a 401(k) without an employer match is still worth it. “Investing in your retirement isn’t just about the match; it’s about harnessing the power of long-term planning," says Pavone. “Even if you’re facing tight times now, remember that each contribution is a step toward securing your financial independence in the years ahead. Although you may be nowhere close to retiring, it’s important to remember that the best time to begin investing in your retirement is when you are nowhere close to retiring, with or without a 401(k) company match."
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