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College Students and Recent Grads, Eliminating Fees, Life Events

When to Avoid a Company 401k

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Man Paying Bills With Laptop

Gone are the days of workers depending upon pensions when they retire. Today, instead of offering defined benefit pensions guaranteeing an employee a monthly payment for the rest of his or her life, employers are moving to more employee-managed retirement savings plans.

Today, more employers offer a 401k plan – if they have an employer-based plan at all. With a 401k, employees make a defined contribution from their income each year. With a pension plan, employees knew exactly how much income they could depend on each month during retirement. Now, it is up to the employees to determine how much they need to save in order to reach their retirement savings goals.

A 401k allows employees to make defined contributions, pre-tax (or post-tax), towards retirement. If you contribute to a traditional 401k, contributions are automatically deducted from your paychecks each pay period, pre-tax. As a result, you don’t pay taxes until money is withdrawn from the account and you cannot withdraw money before 59 ½ without penalties. Some employees offer the option to contribute post-tax in a Roth 401k, so money withdrawn in retirement will not be taxed.

With this change toward employee-directed retirement, rather than retirement guaranteed by the employer, it is up to you to make the best decisions regarding your retirement savings. This could mean it’s best to avoid a company 401k.

Take a look at these situations in which you should not pay into your employer’s 401K, and see if any of them apply to you.

No Employer Match

Many employers provide a match to their employees’ 401k contributions. Employer matches vary greatly by employer, but a common example of this is $0.50 per $1.00, up to 6% of employees’ pay.

Let’s say you earn 40,000 per year at your current job, and your employer provides a $0.50 per $1.00 match, up to 6% of your pay. If you were to contribute the full 6% of your pay annually, you would contribute a total of $2,400 to your 401K over the course of a year. Your employer would then contribute $0.50 for every dollar you contributed, for a total of $1,200 for the year.

In total, over the course of the year your 401K would contain $3,600, and you only would have contributed $2,400 of the balance.

But if your employer does not provide a match, it may be time to reconsider contributing to its 401K plan. Never walk away from an employer match, but if your employer does not provide a contribution match, it may be time to consider other options like saving for retirement in a traditional or Roth IRA.

You Have Reached The Contribution Limit

Effective January 1, 2020, the 401k contribution limits are $19,500 if you are age 49 and under. If you are 50 or older, you can contribute an additional $6,500 above and beyond the $19,500 regular contribution, for a total of $26,000. Of course, you are free to contribute less to a 401K, but saving as much as possible for retirement is always best.

Once you have reached the contribution limit on your 401k, you cannot make any more contributions pre-tax, and it is time to consider alternative investments.

One good alternative is a Traditional IRA. Contributions are made to a traditional IRA after tax, meaning that you pay taxes, and then make contributions out of your paycheck. For 2020, individuals can contribute up to $6,000 per year to a traditional IRA if they are 49 and under. You can contribute up to $7,000 per year if you are 50 or older.

Another solution for aggressive savers is a taxable account such as stock index funds. When using taxable accounts such as these, you can expect to pay 15% on long-term gains and qualified dividends. Additionally, contributions to these plans are made after-tax. However, the benefits of using accounts such as these include being able to withdraw from them for things such as children’s college expenses before age 59 ½ without additional penalties and fees.

You Qualify For a Roth IRA

If you employer does not offer a 401k match – or a 401k plan at all – and you meet income thresholds, then a Roth IRA may be an excellent option for your retirement savings.

A Roth IRA allows individuals whose modified adjusted gross income, which you can calculate at the IRS website, is less than $139,000, or married couples whose income does not exceed $206,000 to contribute to their retirement.

A Roth IRA is different from other accounts, though, because of the way taxes are handled. Contributions are made after tax. However, once the initial contribution is made, you enjoy tax-free growth as long as you follow the rules:

  • 49 and under can contribute a maximum of $6,000
  • 50 and over can contribute up to $7,000
  • You can withdraw your contributions (not growth) at any time without penalty

How much can a Roth IRA save in taxes? If you contribute $5,500 per year to a Roth IRA for 40 years, and your marginal rate is 15%, this is what your account’s growth could look like over the course of 40 years:


In this scenario, you would have only paid in $230,000 during the entire 40 years you worked. You would have paid $34,500 in taxes from your paychecks.

However, your relatively small investment could grow to $1,189,636 – and you will not have to pay taxes on any of that balance when you withdraw it. If your marginal tax rate stayed at 15% when withdrawing money from your Roth IRA, you could save more than $143,000 in taxes alone.

See how much money you can save with a Roth IRA, and how much money it can save you in taxes here, with Bankrate’s Roth IRA calculator.

High Fees

If your employer offers a 401k without a match, a good way to gauge whether it is a good investment vehicle for your retirement savings is to take a look at the fees. Many times both employees and employers are unaware of just how much fees are costing them. After all, 3% seems like such a small number, doesn’t it?

3% may feel like a very small amount to pay in fees, but this example will show you just how much a small percentage can affect your retirement savings.


In this example, the investor is a 29 year old, contributing $18,000 per year to her company’s 401k, and her retirement age will be 65. The current balance of their 401K is $100,000, and fees are 3%.

Just by switching to a plan that cuts fees in half, 1.5%, she could save $801,819.03. Instead of having $1.8 million upon retirement, she could have more than $2.6 million – making for a much better retirement.

You can check out a fee calculator here and find out just how much your fees are costing you!

Even if your 401k has high fees, be sure to consider the employer match. Many times the match will more than cover the fees, making the 401k a good investment vehicle in spite of the high fees.

If You Need Flexibility

401k’s, while they offer tax advantages do not offer any sort of flexibility. Contributions are automatically deducted pre-tax from an employee’s paycheck in pre-set amounts, and cannot be withdrawn without serious penalties until age 59 ½.

For many families, saving and investing money is not just about retirement. It is about college, medical expenses, large purchase, and even vacations. Always contribute to your 401k up to the maximum amount that your employer will match, but if no match is available and you need flexibility for other savings priorities, check out some of these options:

A 529 Plan: An education savings plan operated through your state or an educational institution to help families set aside income for education costs. Although contributions are not deductible on your federal income tax return, the investment grows tax-deferred, and distributions used to pay the beneficiary’s college costs come out tax-free. Some states offer tax breaks for 529 contributions, you can find yours here. In addition, there are very few income and contribution limitations, making the 529 plan a great, flexible way to save for college.

A Health Savings Account: An HSA offers individuals and families the opportunity to save money exclusively for medical expenses, and contributions are 100% tax deductible from gross income. For 2020, individuals can contribute up to $3,550, and families are allowed to contribute up to $7,100. HSA accounts holders age 55 and older can contribute an extra $1,000. If using savings for medical expenses if a priority, talk to your employer about an HSA. Not all insurance plans are eligible.

Taxable Investment Accounts: When saving for large purchases or vacations, more flexible accounts are better. As explained above, index funds, mutual funds, or even traditional savings accounts leave the account holder with more of a tax burden, but far greater flexibility for withdrawals. These accounts do not need to be opened through your employer, but can be opened and managed on your own, or with the help of a financial planner.

If your employer offers a contribution match go ahead and take advantage of the 401k, regardless of high fees or a low income. However, if your employer offers no match, high fees, or you have reached the yearly contribution limit, then it is a good idea to avoid that 401k plan and look into other retirement savings options.

At the end of the day, saving for retirement or other goals is all about you. How much flexibility you need, how much you need to save, and your tax situation. Be sure to weigh all of your options to guarantee that you are making the best decision for you and your family.


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Best of, Building Credit

Know About the Different Credit Scoring Models

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Did you know that there are hundreds of credit scoring models being used today?

With different lenders creating different credit score models based on their own credit criteria, it is very possible that you could have a hundred credit scores. While it is impossible to obtain or keep track of all your credit scores, you should be aware of the models most used by lenders.

FICO score

The FICO score is the most commonly used credit score when applying for credit or a loan. FICO is an abbreviation for Fair Isaac Corporation, the first company ever to offer credit scores. You have different FICO scores at each of the three major credit bureaus — Equifax, TransUnion and Experian. Your FICO Score ranges from 300 to 850, and is based on several factors:

  • 35% Payment History – The most important factor in determining your FICO credit score is your payment history. Delinquent payments could stay on your report for seven years.
  • 30% Debts/Amounts Owed – Your total debt. The lower your debt, the more likely it is that your score will be higher.
  • 15% Age of Credit History – The longer your credit history, the more likely it is that your score will be higher.
  • 10% New Credit/Inquiries – The number of accounts you have opened recently, as well as the number of hard inquiries you have.
  • 10% Mix of Accounts, Type of Credit – The more varied your accounts, the more favorable your score.

However, the FICO model is not as simple as the above breakdown may seem. FICO often makes changes to its credit score model to make it a better reflection of how creditworthy individuals are. As a result, there are currently more than 50 FICO credit score models that are used for different types of debt. A different version of your FICO credit score is used for a mortgage, auto loan, credit card and more.

The latest version of the FICO score is FICO 9, which allows unpaid medical bills to carry a lower weight than other unpaid debts, disregards collections accounts that have been paid off in full and factors in rent payments that are reported.

FICO 9 was developed because unpaid medical debt may not be an indicator of financial health, as an individual may be waiting on insurance payments before paying the debt, or may not even know a bill has been sent to collections.

FICO score 8 is still the most commonly used by lenders. This model does not allow for the lower weighting of medical debt.

Consumers should also be aware of the newly launched UltraFICO Score. This score is the result of a partnership by FICO, Experian and data aggregator Finicity. The key difference between it and other FICO scoring models is that it allows bank account transactions to be factored into the final score. This is a score for which consumers will have to opt in by linking their deposit accounts to their credit profiles. This can help consumers with a sparse credit history to boost their scores based on their banking behavior, which includes a history of positive account balances, frequency of bank transactions, length of time the accounts have been open and evidence of consistent cash on hand.

As this is a very new feature, there will be a slow rollout of availability. You can sign up here to receive news and updates on the UltraFICO score.


VantageScore is the main FICO credit score competitor, and in a similar manner, the VantageScore is constantly evolving to portray a more accurate picture of a person’s financial health. It was developed by the three major credit bureaus. While still not as widely used as the FICO score, an October 2018 study by consulting firm Oliver Wyman found the use of VantageScore rose over 20% year over year, and was up more than 300% over the past five years. Like the FICO score, VantageScore has a scale of 300-850.

  • VantageScore 4.0 was designed with these changes in mind, and it gives those records less negative impact when calculating scores for consumers who have those records in their credit files. VantageScore 4.0 also penalizes unpaid medical collections less than other types of unpaid collections, and ignores unpaid medical collections less than six months old, to give insurance companies ample time to make payments. Consistent with the VantageScore 3.0 model, paid collections (including paid medical collections) are excluded in the VantageScore 4.0 model.

The most recent version is VantageScore 4.0. As is the case with FICO score 9, VantageScore 4.0 puts a lower weight on unpaid medical debt (medical debt less than six months old is completely disregarded). Both VantageScore 3.0 and 4.0 exclude paid collections from their model.

While VantageScore 4.0 debuted in 2017, 3.0 is still the most widely used model. The score takes the following factors into consideration:

  • Extreme Weight: Age and Type of Credit – This refers to your length of credit history and your account mix, and is also factored heavily into your 3.0 score.
  • Extreme Weight: Credit Utilization – The V3 score calculates your utilization percentage by dividing your balances by your available credit. Generally, you should keep your utilization under 30%.
  • High Weight: Payment HistoryVantageScore uses your payment history as the number one predictor of risk. Late payments can appear on your report for seven years.
  • Medium Weight: Total Balances – Refers to your total debt, both current and delinquent. As with credit utilization, the more you lower your debt, the higher chance you have of increasing your score.
  • Low Weight: Recent Behavior – How many accounts have you recently opened? Your recent behavior includes newly opened accounts and the number of hard inquiries recently.
  • Extremely Low Weight Available Credit – The amount of credit you have available to use.

MagnifyMoney’s parent company, LendingTree, offers a free credit monitoring service that uses the VantageScore 3.0 model.

Where can you obtain your credit score for free?

It used to be pretty difficult to obtain your credit score across all three bureaus for free. Now, several financial institutions offer consumers the chance to obtain their FICO scores at no cost. Here is a sampling of banks and credit unions that offer this service:

For Experian: If you have an American Express card, a Chase Slate account, or a credit card with Wells Fargo or the First National Bank of Omaha, you can get your FICO score from Experian. Discover offers an even better service, as anyone can sign up to view their Experian score at, even if they do not have an account with Discover.

For Equifax: If you have a Citibank card, or an account with DCU Credit Union or PenFed, you can access your Equifax score for free. Keep in mind that Citibank uses a scoring model from 250 to 900 based on Equifax and the FICO Bankcard Score 8 model, which emphasizes credit card behavior.

For TransUnion: If you have a Barclays card, select credit cards with Bank of America or a Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card, you can access your TransUnion score.

Knowledge is power

The credit scoring system has a long way to go before it becomes transparent and accessible. Currently, it is up to lenders to use a national score, like the FICO score, their own internal credit score, or a mix of the two.

While it would be impossible to monitor all of your credit scores, there are ways to monitor the most important factors in every score. It’s your right to get annual access to a free copy of your credit report from each of the three bureaus. You can do this at

Even though no lender uses the same credit score model, all scores look at the same basic information, so taking steps to build and keep strong credit will benefit you no matter which score is being used.

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Auto Loan, Reviews

Review: Chase Auto Loan for New and Used Cars

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Online auto loans are quickly becoming the most stress-free and uncomplicated way to finance a new car or refinance a loan you already have. With streamlined approaches to loan approval and the ability to walk into a dealership knowing your exact budget and interest rate with loan preapproval, car shopping is becoming easier on your wallet and your time.

The Offer

Auto loans from Chase range from 48 to 72 months and interest rates can vary by state, but APRs can be as low as 3.04%.

New car: 3.04%
Used Car: 3.04%
Refinance: 4.89%

Chase can loan $4,000 - $600,000 and provides APR discounts up to 0.50% for Chase checking account customers.

How To Apply

An application for a Chase auto loan can be made online or at a local branch, even if you don’t know which vehicle you want to purchase yet. If you don’t know what car you want to purchase, fill out what information you can. Chase will collect vehicle information later.

In order to apply you will need to provide your:

  • Name
  • Social Security Number
  • Address
  • Date of Birth
  • Phone Number
  • Email Address
  • Employment & Income information
  • Loan Amount and Term
  • Vehicle information (make, model, year, current mileage, VIN)

The Fine Print

At the time of this article, APRs are as low as 3.04% and are based upon creditworthiness.

Chase offers APR discounts up to 0.50% for being a Chase customer and enrolling in automatic payments. If you have a personal Chase checking account your APR will be discounted 0.25%. You will receive an additional 0.25% APR reduction if you enroll in automatic payments and continue to have your monthly auto loan payments automatically deducted from your Chase checking account.

Chase also requires the following Loan-to-Value ratios with an excellent credit history.

  • 80% for new vehicles
  • 95% for used vehicles

Chase offers loans for new and used autos, but with a few restrictions. Used cars cannot be more than 5 years older than the current model year and have no more than 75,000 miles. The vehicle cannot have been sold for scrap or declared a total loss. Vehicle cannot be used for commercial purposes, such as a limousine or taxicab.


  • Loans from $4,000 - $600,000
  • Finances new and used autos
  • APRs as low as 3.04% (before Chase customer rate discount)
  • Terms from 48 to 72 months
  • APR discounts up to 0.50%


  • Lowest term is 48 months
  • Rates vary by zip code
  • No online pre approval

How It Stacks Up

On LendingTree, there are hundreds of lenders who are ready to compete for your business. You simply fill out a short online form and can see real interest rates and approval information at once. Keep in mind, some lenders will do a hard pull on your credit and that this is normal within the auto lending space. Multiple hard pulls only count as one pull, so it is smart to have all your hard pulls done at once, which LendingTree can do for you.


As low as


24 To 84





on LendingTree’s secure website

LendingTree is our parent company

Advertiser Disclosure

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertised rate is for new and used auto loans for an offered loan amount of $10,000 with a 36 month term.

LightStream, a division of SunTrust Bank, provides a competitive option with APRs starting at 2.49%, with autopay, terms ranging from 24 to 84 months, and financing of $5,000 - $100,000.

Shop Around First

Online auto loans are becoming increasingly competitive, which is good for you, the consumer. One of the best ways to ensure you get the best rate for your next auto purchase is to shop around for your best rate in the 30 days prior to car shopping. Don’t worry about your credit score as you shop around, because all inquiries within a 30-day period count as one.

Then when you get to the dealership, negotiate the price of your car before letting the dealership know that you have already been approved for financing. Then, once a price agreement has been reached, show the dealership your financing and ask them to beat it.

Often, the manufacturer offers 0% financing, which you may be eligible for. If that is the case, you just negotiated a great deal on a new car and saved hundreds or thousands in interest.

Compare Your Auto Loan Options Here