stop 401K contributions, start IRA

my company offers 401K, but they're shady and don't deposit the funds in the 401K acct for months and only do it when they're caught after multiple reminders and much pressure. also no match. tired of the cat and mouse game with them. would like to contribute nothing this year and instead do my own IRA.

if i read this right https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan , if i contribute nothing to my 401K all year, then i'm not considered covered and i can contribute to IRA as if my employer didn't have a 401K plan.

am i interpreting it right?

47 minutes ago, hsally said:

my company offers 401K, but they're shady and don't deposit the funds in the 401K acct for months and only do it when they're caught after multiple reminders and much pressure. also no match. tired of the cat and mouse game with them. would like to contribute nothing this year and instead do my own IRA.

if i read this right https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan , if i contribute nothing to my 401K all year, then i'm not considered covered and i can contribute to IRA as if my employer didn't have a 401K plan.

am i interpreting it right?

Yes, you are reading it right. In addition, you should call the local Department of Labor and tell them what you suspect; they will actually get on the case very quickly and find out what the client is doing.  He is not allowed to hold the money more than a couple of day and if he does, he is subject to penalties (and even could go to jail, though that's unlikely).  It is a criminal act not to pay over the withheld deferrals.

hsally, note that if the employer can be "reformed" (e.g., by following Larry' Starr's suggestion above), then the 401(k) may be better, because there may be matching contributions and the contribution limits for your own contributions are higher than for an IRA. If there is no match and the IRA limits are not too low for your savings amount, the IRA will probably be a supierior vehicle for you, because it will probably have lower fees if you go to one of the large mutual fund vendors and the account set up and contributions, as well as monitoring of investment performance and investment changes, can be handled on your phone by downloading the vendor's app.

Watch the Check box 13 on your W-2 to see if it's marked "Covered" or not.  There are income limits for deductible IRA contributions if you're "Covered".  This Box can be checked in error.  It may or may not matter.

On 1/20/2020 at 4:08 PM, hsally said:

if i read this right https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan , if i contribute nothing to my 401K all year, then i'm not considered covered and i can contribute to IRA as if my employer didn't have a 401K plan.

 

You should plan on not funding your IRA until you receive your W2 for a given calendar year so that you can verify the "COVERED" checkbox is unchecked, as imchipbrown mentioned above. It is possible that your boss makes an Employer contribution to your account which would then trigger the "COVERED" checkbox, even if you do not contribute.