Should I Rely on My Employer’s 401(k)?

Summary

Ramsey Everyday Millionaires Episode Summary

Episode Title: Should I Rely on My Employer’s 401(k)?
Host/Author: Ramsey Network
Release Date: February 19, 2025

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Introduction

In this insightful episode of Ramsey Everyday Millionaires, the hosts delve into the critical question: "Should I Rely on My Employer’s 401(k)?" Hosted by members of the Ramsey Network, including Dave Ramsey, Ken Coleman, Rachel Cruze, George Kamel, Jade Warshaw, and Dr. John Delony, the episode provides actionable advice for individuals navigating their retirement investment options.

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Caller’s Situation and Initial Inquiry

The episode begins with a listener, Andrew from Winston Salem, North Carolina, reaching out to the show. At [00:23], Andrew shares his financial progress and seeks guidance regarding his retirement investments:

• Age: 32
• Financial Status: Reached Baby Step Number Four (Debt-Free)
• Current Investments: Enrolled in his employer's 401(k), contributing 6% to receive the full company match.

Andrew seeks confirmation on Dave Ramsey’s advice to maximize his retirement savings by:

1. Contributing 6% to his 401(k) to receive the employer match.
2. Opening and maxing out a Roth IRA.
3. Channeling any additional funds back into the 401(k) to reach a total of 15% of his household income towards retirement.

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Dave Ramsey’s Comprehensive Guidance

Dave Ramsey affirms Andrew's understanding and provides nuanced advice to optimize his retirement strategy:

1. Maximizing Employer Match:

   • [01:25] Dave emphasizes the importance of securing the full employer match, noting that it offers an immediate 100% return on investment, which is unparalleled by any mutual fund or traditional investment.

2. Roth IRA vs. Roth 401(k):

   • [01:34] While Andrew initially considers opening a Roth IRA through Fidelity, Dave advises exploring whether his employer offers a Roth 401(k) through Fidelity. If available and featuring robust mutual fund options, consolidating investments within the employer's Roth 401(k) may be advantageous.
   • [02:11] Dave suggests that if the employer’s Roth 401(k) presents good mutual funds, Andrew could consolidate all savings there before considering additional Roth IRA contributions.

3. Diversifying Investments:

   • [02:04] Dave highlights the diversity within mutual fund families, comparing them to different brands and types of soup. This analogy underscores the importance of not limiting investments to a single fund family and instead selecting based on performance and mutual fund track records.

4. Achieving the 15% Retirement Savings Goal:

   • [04:06] Dave clarifies that the 15% retirement savings goal is based on the total household income. For married couples, this means both incomes combined. Importantly, the 6% employer match does not count towards this 15%, reinforcing the need to contribute independently to reach the target.
   • [05:32] He elaborates on a strategic investment hierarchy: Match > Roth > Traditional. This prioritization ensures that individuals first maximize their employer match, then contribute to Roth accounts for tax-free growth, and finally to traditional accounts if further contributions are possible.

5. Final Recommendations:

   • [03:17] Dave encourages using resources like ramseysolutions.com and connecting with a SmartVestor Pro to tailor investment strategies.
   • [05:33] He reiterates the unparalleled value of employer matches, stating, “Match beats Roth beats traditional”, emphasizing that securing the full employer match should always be the first step in retirement planning.

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Co-Host Insights and Reinforcement

A co-host provides additional context and reinforces Dave's advice:

• [03:17] The co-host commends Andrew's progress to Baby Step Four, highlighting the transition from eliminating debt to building wealth.
• [04:42] They seek to clarify the 15% retirement savings rule for listeners, ensuring that the advice is accessible to those new to retirement planning.

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Key Takeaways and Insights

• Maximize Employer Match: Always contribute enough to your 401(k) to receive the full employer match, as it offers a guaranteed return that's hard to beat.
• Roth vs. Traditional: Prioritize Roth accounts for tax-free growth, but also consider traditional accounts based on employer offerings and personal tax situations.
• Diversify Mutual Funds: Don't limit your investments to a single mutual fund family. Evaluate and select funds based on their performance and track records.
• 15% Retirement Savings Goal: Aim to save 15% of your household income towards retirement, excluding employer matches, to ensure a financially secure future.
• Utilize Resources: Leverage platforms like RamseySolutions.com and consult with SmartVestor Pros to optimize investment strategies.

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Notable Quotes

• Dave Ramsey [02:11]:

  “You don’t have to have all of your soup from Campbell's. You could get a different brand of soup.”

• Dave Ramsey [05:33]:

  “Match beats Roth beats traditional. A match is a 100% rate of return. You put in a thousand bucks, they put in a thousand bucks, you made a thousand dollars on your money instantaneously.”

• Co-Host [03:17]:

  “He worked really hard to get there. It was a big accomplishment.”

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Conclusion

This episode of Ramsey Everyday Millionaires provides a clear, actionable roadmap for individuals contemplating the reliance on their employer’s 401(k) for retirement. By emphasizing the importance of maximizing employer matches, strategically balancing Roth and traditional accounts, and aiming for a comprehensive 15% savings goal, the hosts empower listeners to make informed decisions that pave the way to extraordinary wealth. Whether you're just starting your retirement journey or looking to optimize your current strategy, this episode offers valuable insights to help you build and sustain wealth effectively.

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Connect with Ramsey Everyday Millionaires: For more personalized advice and investment strategies, visit RamseySolutions.com or reach out to a SmartVestor Pro through their platform.

Transcript

[Caller]

Foreign.

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[Dave Ramsey]

At RamseySolutions.com SmartVestor Andrew is in Winston Salem, North Carolina. Hi, Andrew. Welcome to the Ramsey Show.

[Caller]

Hey, Dave. Hope you guys are doing well today. Appreciate you taking my call.

[Dave Ramsey]

Sure.

[Caller]

So I'm 32 years old and I've been following your baby steps and your content on YouTube and your website. I've just reached baby step number four.

[Dave Ramsey]

So congratulations. Well done.

[Caller]

Thank you very much. Yeah, it was a big achievement. So in regards to investing, I just took a look at kind of what my current situation is. And I'm enrolled in my employer's 401k and contributing 6%, which is what my company matches. Now, I think your advice is to next open up a Roth IRA and max that out. And if there's any leftover, put that back into the 401k to hit my 15%. Is that correct?

[Dave Ramsey]

Yeah, exactly. Unless your 401k offers a Roth and has good options, good mutual funds to pick up, in which case you could just put it all in there. Doesn't matter. But does your company offer a Roth 401K?

[Caller]

It's through Fidelity. So I'll have to go and check into that. I was going to open up a Roth IRA through Fidelity just to keep it under one roof.

[Dave Ramsey]

I wouldn't.

[Caller]

You would not?

[Dave Ramsey]

No, I would go find. It's not, it's not whether it's from. With Fidelity. Fidelity offers Roth 401ks to the employers that use Fidelity to manage their 401ks. And the only question is whether your employer allows that or not. If they do, you need to switch your whole thing to Roth. Now do you have good long term options for mutual funds inside that 401k?

[Caller]

I believe so. Just at the, you know, based on the quick searching I've done.

[Dave Ramsey]

Okay. You know, if you've got great options there, I would just put it all there and I put it all in Roth.

[Caller]

Okay.

[Dave Ramsey]

That's what you know, if that gets you to your 15%. If it doesn't, then you can open a Roth. And I would go to a SmartVestor Pro amseysolutions.com to get your investing started. But the mutual fund of family, the brand is Fidelity. There's Vanguard, there's Templeton, there's American funds. Those are brands like Campbell's Soup. But then the mutual funds inside is the vegetable soup or the chicken noodle soup or the chili or whatever, whatever analogy or metaphor we want to use here. So you don't have to have all of your soup from Campbell's. You could get a different brand of soup. So it's not required that you go get a Fidelity Roth just because your 401k is that. Not at all. I'm not saying they're bad. Most of these fund families, these brands have good funds and bad funds track record wise. So you just need to learn about their track records. And if you want some further help, do go to ramseysolutions.com and sit down and do that. And the big thing he's doing.

[Co-Host]

Right.

[Dave Ramsey]

Is he's actually doing it.

[Co-Host]

Yeah. And that he worked really hard to get there. I loved how he kind of paused after you said, great job, and he went. It was a big accomplishment. And you know what's fun to hear about that is this is a guy who now understands the pain that they went through to get to baby step four. And now you get to the momentum stage where we're like, now we're getting wealthy and building wealth. And that's fun to hear.

[Dave Ramsey]

Yep, Yep. Absolutely. And yeah, it's like, man, I got rid of all those payments. Now I got some money to invest time to flip the switch from being a broke person to being a rich person. Right.

[Co-Host]

I'll ask a question because we got a lot of new people all the time. And I'd love. I know the answer, but I'd love you to address it because we tell people in baby step four 15%. So the 15%. Explain that. Because he's got 6%, he's putting in his company's matching. Because I think a lot of people have questions about that. So about what we teach on that number.

[Dave Ramsey]

Just take your household income. If you're married, you and your spouse's income total times 0.15. And that dollar amount needs to be going into retirement somewhere somehow. The best thing you can do is take a match, regardless of if it's Roth or traditional. If your company's matching, like he's got a 6% match, the best thing you could do. And the 6% match does not count towards the 15. You are putting 15 in. The fact that they give you 6%, that's irrelevant. It's wonderful, but it's irrelevant to this discussion. So you put in 15%. That was your point.

[Co-Host]

That's right.

[Dave Ramsey]

And then. But the. It's kind of a rock, paper, scissors, except it only goes one way. Match beats Roth, beats traditional. So you go down the order. You first get all the match you can get. If they have a Roth like I suggested to him, he may. Then you get the match in a Roth that's a, that's a double win. Then you max out in Roth. And if you can't do anything except traditional beyond that because for instance, you, you did a, your company only has a traditional 401k. So you got the 6% match like he may have, he thinks he might have, then you move on from that 6%. We move on down. We do Roth at the, at the Smartvestor Pro. Well, that Roth amount plus the amount you put in the 401k at 6% match still not up to 15%. Then the last stage is you'd go back and finish off with the traditional, which he had that exactly right.

[Co-Host]

That's right.

[Dave Ramsey]

He'd been listening and had that figured out. Exactly. So match beats Roth beats traditional. Because a match is 100% rate of return. You put in a thousand bucks, they put in a thousand bucks, you made a thousand dollars on your money instantaneously. And there are no mutual funds that have 100% red of return. None. And there are no taxes that are 100% tax rate. So you can always win with a match. Always matches trump card. It wins the whole thing.

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