Talk To Your Employer
If you don’t have a retirement plan, start by talking about it with your company.
“Sometimes the employer doesn’t know that there’s a need for it, so they don’t look at the options available and set one up for their employees,” said financial advisor Winnie Sun, founder at Sun Group Wealth Partners.
Be sure to let your employer know that there are incentives for them to offer such a plan.
That includes tax credits that are available for employers who sponsor a retirement plan, according to Aaron Pottichen, senior vice president at Alliant Retirement Consulting.
The owner, your boss, could use the plan to shelter their own taxable income. And instead of paying bonuses in cash, they can instead contribute to the savings program and build incentives for employees to stay, Pottichen said.
What Are Your Investment Options To Prepare For Retirement When An Employer Doesnt Offer A 401
Over the past 40 years, 401 plans have become the most common type of retirement plan offered by private employers. As of September 2021, there was $7.3 trillion worth of assets being held in 401 plans and about 60 million active participants, according to the Investment Company Institute.
Even amid such progress, however, many Americans still do not have this type of employer-sponsored retirement savings account. But that doesnt mean you should forgo retirement savings altogether. There are many other ways to set aside money to ensure youre prepared for the future.
Ask Your Employer To Start A Plan
Tell them how important a retirement plan is to you. In casual conversations at work, find out how many other employees would like to have this important benefit. You can even point out how it helps your employer: remind them that a retirement plan may help attract top-notch employees to your company and there are business tax benefits as well.
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What Can I Do If My Job Doesn’t Offer A 401k
Chris Gottschalk About The Author
Most jobs offer some type of benefit above and beyond a steady paycheck. One of the most common types of benefits is the 401the current retirement plan of choice that lets you put part of your pre-tax dollars into a savings account. Usually a financial planner will then invest this money into one of several portfolios.
Its a good benefit, and the earlier you start the better it is. In the world of good money moves, having a retirement fund is one of the best you can make, and its a big step in making sure youll eventually be able to retire.
Some companies dont offer a 401, though. They may be too small for a 401 to be worthwhile, or they might be a startup that is too new to have one. They might also be a company that focuses on hiring entry-level and part-time employees and dont offer a 401 in order to keep costs down.
If youre working for a company that doesnt offer a 401, dont worry. You can still save for retirement with one of the following alternatives.
Why Are States Mandating These Retirement Plans
Some states have begun mandating retirement plans as a way to address the retirement savings gap in this country. Their response is based on research that shows:
- The average working household has virtually no retirement savings1
- Employees are more likely to save when they have access to a 401 or similar plan by their employer2
- Only four in 10 businesses with less than 100 employees offer retirement benefits3
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Creating A Retirement Savings Strategy When You Dont Have A Company Match
Even though you should still participate in a 401 plan even without a company match, it may still require a different strategy.
For example, if you do have a company match, the strategy is simple.
Youll want to maximize your contributions to the plan, as well as to maximize the employer match.
But if there is no match, the following approach is recommended:
Whats The Big Deal About A 401 Anyway
Among ways to save for retirement, the 401 plan is the undisputed king. Thats because:
- Employees can contribute with pre-tax dollars, and earnings are tax-deferred
- In 2018, employees can save up to $18,500 in a 401 compared to just $5,500 in an individual retirement account
- There are no income limits for making 401 contributions
- Many employers provide matching contributions
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Set Up Direct Deposit
One of the reasons why we love the traditional 401 is because contributions are automatically deducted from your paycheck. You can create direct deposit contributions with other plans, too! Contributions to an IRA can be done in one contribution, but we think you should consider automating these in predetermined intervals, like at each paycheck, monthly or quarterly. This way, you can take advantage of buying into the market at different times and prices and, you dont have to think about or accidentally skip contributions.
Crank Up The Investments Available
- Contribute more Put a higher percentage of your income into your existing retirement plan. Since it lowers your taxable income, it may be cheaper than you think.
- Try other tax-deferred options Consider opening an individual retirement account if youve reached the maximum contribution level in your employer-sponsored plan.
- Consider getting taxed up front Money placed in a Roth IRA is taxed now, but qualified Roth earnings are never taxed. This can save you more money in the long run.
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Option : A Taxable Investment Account
Once youve contributed enough to max out your IRA , you can keep going with a normal taxable investment account, sometimes called a brokerage account. These accounts dont come with the same special tax benefits as IRAs, but that doesnt mean you cant use them to invest for retirement.
They also dont have contribution limits . So if there are no IRS constraints, how much should you contribute to your taxable account after youve maxed out your IRA?
The short answer: enough to get you on track for the retirement youre dreaming of . To figure that out, of course, first you have to do the dreaming part. What does that ideal retirement look like ? Whether you want to move somewhere warm or just escape the rat race of a corporate career, youll need to evaluate your cost of living: your annual budgets, your extra expenses, etc. If you expect to or want to keep working part-time, how much income could that add? And so on. Once you figure out how much youll need each year, you can then add that up to find out how much youll need to aim to have saved total.
Ellevests online investing platform can help you figure that out and stay on track. We use details from your real life like your salary, education, current savings, and, importantly, gender to project how much we think youll be making per year right before you retire . Then we calculate how much youll need in order to pay yourself 90% of that salary per year after you retire.
How Do I Get A 401 Loan
Not all, but most employer-sponsored 401 plans allow their participants to take out 401 loans. It is an excellent way for employees to tap into their retirement funds without paying income taxes and early withdrawal penalties.
If your 401 plan utilizes an online portal to do the operations of its accounts, you can apply for a 401 loan from there. This option usually is the quickest as it doesnât have to go through a person to facilitate the loan process. From application to approval, it can take anywhere from a couple of business days up to a week.
401 plans that donât have an online presence can still offer 401 loans. Youâll need to contact your planâs administrator or human resource department and complete an application form. This process may take a little more time since a person will need to review your documentation and grant an approval.
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Leave Your 401 Savings In Your Previous Employer’s Plan
Sometimes the easiest option when you switch jobs is to leave your 401 with your previous employer. That’s because you won’t lose any contributions you’ve already made and your money will maintain its tax-deferred status until you withdraw it. Plus, if the plan has provided strong returns with low fees, leaving it alone can continue to pay off.
This may also be a good short-term option if your total 401 contributions are more than $5,000 and you’re between jobs or laid off. However, in the long term, if you keep your existing 401 and your new employer offers you a separate 401 plan, you may end up paying fees on two plans.
If An Employer Doesn’t Offer A Retirement Plan What Might Be Another Way To Save For Retirement
If your employer doesnât offer a retirement plan, you still have options to save for retirement. IRAs and annuities provide great opportunities to build a nest egg.
An employer-sponsored retirement account is one of the best ways to save for retirement. The 401 is one of the most available retirement savings accounts. However, many Americans still donât have access to an employer-sponsored retirement plan. Only 59% of American workers are provided a retirement plan through their employer. If youâre one of them, donât worry. There are plenty of opportunities to save for retirement outside of employer-sponsored plans.
If your employer doesnât offer a retirement plan, individual retirement accounts and Roth IRAs are great alternatives. The contribution limits for each are much less than what is allowed for employer plans but still provide many benefits. Additionally, annuities offer a riskier, non-tax-deferred option.
When left without the guidance of an employer-sponsored retirement plan like a 401, it can be challenging to decide the best options to save for retirement. Letâs go over the features of each, where to open these accounts, and what makes them good options if you find yourself without a retirement plan where you work.
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An Ira Is A Good First Choice
An IRA is an Individual Retirement Account that you open in your own name. Like a 401, savings grow tax-deferred, which means you don’t pay income taxes on the earnings as long as the money is in the account. Currently, you can contribute up to $6,000 a year to an IRA . That would be a good start to your savings.
You do have a couple of IRA choices, so before you open one, you’ll need to consider which type of IRA is best for you.
- Traditional IRAWith this type of account you generally get an upfront tax deduction for your contribution. Potential earnings grow tax deferred, but you’re subject to ordinary income taxes when you make a withdrawal. If you withdraw money before age 59½, you may also be hit with a 10% penaltyall the more reason to give your money the opportunity to grow.
- Roth IRAWith a Roth, there’s no up-front tax deduction, but you can withdraw potential earnings tax free at age 59½ if you’ve held the Roth for five years. You’re subject to a 10% penalty if you withdraw earnings before 59½, but there’s never a penalty for withdrawing the money you contributed.
To contribute to a Roth IRA, you have to meet certain income limitations. In 2022, if you’re married filing jointly, you can make a full contribution as long as your Modified Adjusted Gross Income is less than $204,000 .
When Is It A Bad Idea To Take Out 401 Loans
You should always avoid 401 loans as much as possible, especially if one or more of the following conditions is true:
- If you can find money from other alternatives
- You are thinking about changing jobs
- When you are in financial hardship already
- You are borrowing money to finance expensive purchases or luxury items
- Your company is undergoing financial difficulties or has been acquired by another company which could end with restructuring
- When you are close to retiring
If any of the above conditions are true, you should not borrow against your own 401 retirement plan.
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Do All Employers Offer 401k
Not all employers offer 401 plans, but many do. This type of retirement savings plan is becoming increasingly popular, and more employers are beginning to offer it to their employees. If you’re wondering whether or not your employer provides a 401K plan, the best way to find out is to ask.
Many employers will be happy to tell you about their benefits packages and what they include. If your employer doesn’t currently offer a 401K plan, it’s worth asking if they would be willing to start one.
The most frequent reason an employer doesn’t offer a 401 is that the majority of their employees are entry-level or part-time. The average employee in these jobs is either very young or living paycheck to paycheck, making retirement saving difficult. Most would rather receive additional cash up front than get a retirement plan.
What Is A Spousal Ira
Now listen up, married people, because this is important. Even if you or your spouse doesnt have an earned income, you can still have two Roth IRAs between both of you thanks to the spousal IRA. For most single-income families, fully funding two Roth IRAs will be enough to reach the goal of investing 15% of their income for retirement.
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You Can Fund A Traditional Ira
A traditional IRA, or individual retirement account, allows you to contribute pre-tax dollars . You pay taxes when you withdraw the money once you retire, meaning that its tax-deferred.
If you earn taxable income and are under age 70 ½, you can contribute. Easy-peasy. Plus, since you have no 401k or retirement plan at work, you can put money in and deduct the entire amount from your taxes.
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If I Dont Have A 401 When Should I Start Saving For Retirement
If you dont have a 401, you should start saving for retirement as soon as possible. You can contribute to a traditional IRA or Roth IRA, and both will allow you to save tax-free. If your employer offers a matching contribution, make sure to take advantage of it! And if youre not sure where to start, check out our guide on how to create a retirement savings plan.
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Ira Vs : How To Choose
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So What If Youre Not Eligible
If you dont work for an employer that offers a 401 plan, your retirement options are limited. The IRA is going to be your best friend, as long as you dont earn more than IRA income caps. You can choose to contribute pre-tax dollars to a traditional IRA and pay taxes on withdrawals in retirement or contribute post-tax dollars to a Roth IRA from which you can make tax-free withdrawals in retirement.
Again, you can only put in up to $5,500 per year. There is, however, some good news: If you forgot to make IRA contributions throughout the year, you can count IRA contributions you make up to April 15th towards the previous tax year.
