You definitely should be something away and the younger the better. Depending on who handles the 401(k) there is sometimes an option to add a brokerage account if you do want to do some of your own investing. That said, you might want to consider whether a Roth IRA makes more sense. If this is your first job and you figure you will be making a higher salary in the future, figure out if you want to pay your taxes now in the future.
I'd reduce my ESPP unless discounted (generally, some companies maybe not) before I cut my 401k personally. 401k currently directly reduces one's AGI and that can be a large tax savings in some brackets, and then being tax deferred it's a useful vehicle later after rolled-over to hold various cash-producing investments in.
Personally I dump as much as I can into a 401k if I have one when employed, but I switch jobs often enough that when I move on I just roll it over into a self-directed IRA anyway... I get some suboptimal investments as a result for some period of time (7% in the last six months which doesn't suck historically but compared to the astounding returns I've had in my mainline accounts... well, it's less than what I would've had otherwise looking at my recent pattern of self-directed investments over the same timeframe).
Long term I suspect you'll wish having invested in 401k earlier, I know I did as if I'd really started getting my poop in a group earlier there's a non-zero chance I'd already have walk away and do something else money right now than doing less and less to maintain my salary in an industry I'm starting to loathe.
What does your employer match on your 401k? Most employers match up to a certain percentage. Make sure your contribution to your 401k is high enough to get the full amount of your employer match.
If anything, I would start with lowering the amount going into the ESPP if you need additional funds to make ends meet. Compounding is your friend. Starting your retirement fund at an early age will help solidify your future. I wish I had received the same advice as many years back.
Current Score: Eq: 823 Tu: 830
Hi, my 401k is not matched 
But its like, what would you do?
ESPP you get 15% off when selling. So its like when I need money I can sell my ESPP.
401k though is taking the same chunk. Would you lower 401k a bit knowing that ESPP will give you higher return quicker ?
@Anonymous wrote:Hi, my 401k is not matched
But its like, what would you do?
ESPP you get 15% off when selling. So its like when I need money I can sell my ESPP.
401k though is taking the same chunk. Would you lower 401k a bit knowing that ESPP will give you higher return quicker ?
It's not quite that simple on the returns or on the prioritization.
ESPP gives you a 15% discount yes, so that's basically "free" money, and that's a good thing. But that alone may not make it the best option in terms of prioritizing all cash toward it vs. a 401k. Here's some things to think about:
1. 401k contributions (assuming not a Roth 401k) are tax-deferred, aka pre-tax. This means for every $100 you take out of your paycheck to put into that 401k, it's actually only reducing your net by about $75-$85, depending on your current tax bracket. ESPP is all after-tax withholding, so for every $100 you pay into an ESPP you're actually paying more like $120.
2. 401k contributions may grow tax-free but once you withdraw, 100% of the amount of the withdrawal is considered taxable income. If your AGI is very low otherwise (which is possible to do in retirement if you're largely living off non-income sources such as capgains income and/or Roth income), you can keep the tax rate for 401k distributions about on par with that of capital gains (~15%), but if you have too much AGI, the rate on ESPP may eventually be better.
3. The other side of point 2 above is ESPP taxation. If you hold the stocks for > 12 months, they become "long term" and thus the *gains* from the fair market price at time of purchase are taxed at capital gains rates, but the difference in price from your purchase price and the fair market are *always* taxable at income rates. If you end up getting some great pricing, this can sting a bit later. For example, I'm sitting on a few thousand shares myself where my purchase price ended up being almost $10/share below fair market at purchase time, so no matter what I do (unless I wait for them to fall below what I paid), I'm looking at tens of thousands of dollars in taxable income the moment I liquidate those shares, plus any capital gains above the fair market rate. If you get RSUs, it's the tax equivalent of executing ESPP at $0/share, so those can really add to the tax bill fast.
4. ESPP are stocks, so they can be sold at any time, unlike a 401k.
I know this is a lot of information all at once, but the point I'm making is that both have their pros and cons, and in the end, the up-front appeal of the 15% discount alone shouldn't determine how you save. If you can max both out, then this isn't so much an issue as you are gaining from both. Also note that as your income goes up, you can start leveraging 401k not just as a retirement vehicle, but as a way to suppress your AGI such that you can stay in a lower bracket, qualify for Roth contributions, and other similar tax benefits.