3 Key Decisions to Get Right in Your Walmart 401(k)

Walmart offers its employees a robust 401k Plan highlighted by a 6% employer match, both Traditional and Roth 401k options and a broad menu of low-cost index funds. As one of the largest 401k Plans in the country, its size, scale and impact are truly impressive!

But unlike the traditional pension plans of the past, today’s 401(k) plans put most of the decision-making in the hands of the participant. Here are the three most important choices every participant needs to get right:

#1 How Much to Contribute to Your Walmart 401(k)?

I won't bury the lead: Contribute at least enough to receive the 6% Walmart contribution. That is free money!

We all know that we need to save money today for the future, but we also have competing priorities that demand those funds today. But, outside of covering your basic needs and saving for emergencies, saving for retirement via your 401k should be a top priority. It's one of the most powerful tools you have to build long-term wealth.

Yes, the money is generally locked up until age 59½ (unless you want to pay a 10% penalty), and the investment options are (intentionally) simple. But, those are positives if your goal is to save for retirement - even if Crypto and Private Equity interests are lobbying really hard to get into your 401k.

The 6% Match: Walmart offers a generous matching contribution up to 6% of your combined salary and bonus typically after just one year of service. Even better, the matching contributions are 100% vested immediately. This is not common as most companies offer a lower match AND require multi-year vesting.

Takeaway: Contribute at least 6% of your Base Salary and MIP to receive the maximum employer match. And do not forget to take advantage of the Associate Stock Purchase Plan which also has a matching contribution.

#2 Pre-Tax or Roth 401k?

The Walmart 401k allows employees to contribute to a Traditional 401k or a Roth 401k. The contributions made to the Traditional 401k are not taxed in the year you make the contribution, but the funds are taxed when they're withdrawn in the future.

For the Roth 401k contributions are taxed the same year but grow tax-free and withdrawals are not taxed. Also, you're allowed to withdraw contributions anytime, tax-free since you have already paid taxes on those funds.

So, which one makes sense for you? It all depends on your current tax rate and your expected future tax rate. You need to pay taxes in one of those time periods, and you want to pick the one with the lower tax rate.

Generally speaking, the decision to contribute to a Pre-Tax or Roth 401(k) is straightforward for those in high or low tax brackets.

1.) If you are currently in a low tax bracket - 12% or lower - contribute to a Roth 401(k)

2.) If you are currently in a high tax bracket - 32% or higher - contribute to a pre-tax 401(k).

3.) And for those in the middle tax brackets - 22% and 24%, likely either way is fine, and you can even contribute some to both (i.e. tax diversification.)

If you plan to live in a different state in retirement - such as a no tax state - that tilts the scale in favor of the Traditional 401k.

Takeaway: Figure out your current tax rate and make an educated guess of what your tax rate will be when you finally make withdrawals by considering what other taxable income you will have in the future and where you'll live.

#3 Diversification and Low-Costs: How to Invest the 401(k)?

Walmart offers a solid menu of investment options. OK, what does that even mean?

It means that employees can achieve diversification across asset classes and geographies through low-cost index funds. While there are some actively managed funds that are more expensive, you can build a diversified stock fund portfolio for less than 0.03% per year. That's very "EDLC"!

The Retirement Date Funds are an option if do not mind paying extra - in the 0.20 - 0.25% range. These will automatically rebalance as you approach your selected retirement date. But, I encourage everyone to consider the lower-cost DIY approach.

Equity

• Large Cap Equity (Fee = 0.03%)

• Blackrock Russell 2000 Fund Trust (0.01%)

• Blackrock International Fund Trust (0.03%)

Bonds/Cash

• Blackrock Bond Index Trust (0.10%)

• Blackrock Money Market Trust (0.05%)

  
  

​Here is a link to the Investment Options and their fees.​

No need to overthink it unless that is your idea of "fun". I recommend putting the most thought into the allocation between stocks and bonds/cash. In general, if you’re far from retirement, lean more toward stocks. As you get closer, gradually increase your allocation to bonds and cash to reduce volatility.

Takeaway: Keep it simple and cost-effective. Focus on your stock/bond mix and make adjustments every 1-3 years as needed.

Wrap-Up

Walmart’s 401(k) is a powerful benefit—but like most defined contribution plans, it puts the responsibility on the participant to make the right decisions. I hope this article helps you think through the key choices: how much to contribute, whether to choose Roth or pre-tax, and how to invest your savings wisely.

Taurus Financial Planning offers flat-fee financial planning. If you are interested in learning more schedule a quick intro.

SCHEDULE A FREE CONSULTATION

Mark Chisenhall, CFA is the founder of Taurus Financial Planning, a Bentonville, AR wealth management firm specializing in helping Walmart Leaders reduce taxes, optimize investments, and accelerate retirement.

This publication is for informational purposes only and is not intended as tax, accounting or legal advice or as an offer or solicitation of an offer to buy or sell or as an endorsement of any company security fund or other securities or non securities offering. This publication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made by the Author, in the future, will be profitable or equal the performance noted in this publication.

This information is provided as a guide to assist you in your financial planning. The specific examples are provided for illustration purposes only and are not representative of specific investments or guarantees of future returns. Please consult with a professional for specific questions regarding your particular situation.