Is it too late to start a 401K plan at age 52?

Question

I just went to work full time, after divorce, at age 52. I have elected to contribute 6% of my pay to start off with. Do I have too late a start in life for a 401K and would be better off just saving that amount in a savings account?

Answer 1

if you can leave it alone and promise not to touch until 59 and 1/2 yrs old then go ahead,if you think you might draw it out or borrow it then don't ,you can buy tax differed cds without the retirement rules then have access to your money,you can purchase iras at tax time and get some tax deferred  income,so think it over.........tom

Answer 2

Hello - It is NOT too late.  I would max out what you are allowed to contribute though.  Put as much in as you can possibly afford.  Good luck!

Answer 3

You still have nearly 15 yrs to build up your retirement account.  Why would you choose a savings account, where all your contributions would be taxed immediately??  Also if your employer matches, using a savings account is a bad idea.  

Six percent will not do the job though.  I would do at least 15%, and maxing out your plan would be the best idea.  If you can afford it, that is.

Answer 4

It is never too late. You always will want to contribute enough to get the maximum match from the company if there is one.

That match is "free" money. Failing to contribute enough to get the match is throwing away money.

In fact it should be far easier for you at that age to decide to put money in the 401k because you are closer to the 59 1/2 age where you can draw on that money without penalty.  so you are not locking it away for that long. And you can continue past that age without drawing on it.

Certainly you don't benefit as much from the long term compounding of tax deferred deposits. But the compounding factor at any level is less in an after tax account so that is a wash.  

Remember pre-tax deposits for somebody in the 15% tax bracket only cost you 85 cents for every dollar invested which is what you would get after tax.

So your 6% is really is only costing you closer to 5%. Less if you are in a higher tax bracket.

And pre-tax deposits lower your current income for income taxes, (but not FICA),  so you save on current income tax too.

The only exception where it is a bad idea is if you would be in a higher tax bracket after retirement than you are now. For most people that is incredibly unlikely.  

Good Luck.