Ask Farnoosh Roundup: 401k Matching, House Renovation and 529 Plans

I’ve returned from vacation to an overflowing Ask Farnoosh mailbag. Thank you!

It goes without saying that your questions are really, really smart. I couldn’t pick just one to answer so this week, so we’re featuring three very interesting queries. From retirement to financing a home renovation to college savings, we’re about to cover a lot of ground:

Leland asks, “What if my employer-sponsored 401k does not have a match? Should I still invest in the 401k or would an IRA be a better route?”

That’s a bummer that your employer doesn’t offer a match. But that doesn’t mean your 401(k) is totally useless. The 401(k) comes with a number of advantages. First, contributions can lower your taxable income today. The same is true, of course, with a traditional IRA, but the contribution limit with a 401(k) is more than three times greater. You can invest up to $18,000 in a 401(k) this year, versus $5,500 in an IRA. The 401(k), therefor, can offer you a bigger tax savings if you contribute up to the limit.

That said, be sure to compare costs for both saving vehicles. Fees associated with a 401(k) vary and are typically higher than the fees you may find associated with an individual retirement account. The investment options may also be narrower in a 401(k) plan. I recently came across a website called BrightScope that helps you quickly evaluate your particular 401(k) plan components including costs and the overall plan rating compared to its peers.

Sara says, “My boyfriend and I have a baby now under a year old and are looking to do a house addition. We have $55,000 in cash for the addition and estimate it will cost $200,000. We are struggling with how to finance it. The mortgage is currently our only debt, which we anticipate will be at around $90,000 by the time we begin renovations. Our liquid day-to-day savings is low, about $4,000 combined. Any advice?”

For my response to Sara’s question and a few others check out the full Ask Farnoosh round-up post over on the Mint blog.

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Deepak Chopra

“Abundance consciousness comes from the fact that you have access to your creativity. If you ask yourself, “What’s my passion? What’s my purpose? How can I serve? How can I improve the quality of life?” You pursue excellence, then success is a byproduct.”

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