What to Do If You Don’t Have a 401(k)

Piggybank on wooden table with stacks of coins beside it. A hand putting a coin into the piggy bank.

As the coronavirus sweeps the world and people take a step back to look at their finances for the long term, we are seeing that about half of workers don’t have access to a retirement plan at work.  That means that even as 50% of workers can take advantage of automatic payroll deductions and contribute $19,500 or more to a tax-advantaged company retirement plan, about the same percentage is on the outside looking in.

Some of these people may work for companies that offer plans, but are not eligible to contribute because they either don’t meet the criteria or they are part-time employees. Some may be self-employed, which leads to other retirement savings options and others may simply work for a firm that doesn’t offer a plan at all.

So, as people start putting a tighter rein on their finances during this economic recession, it’s important to discuss retirement saving options for those who do not have access to one through their company.  Below we will share several options for people in this situation according to an article by MorningStar.

1) Invest in an IRA.

A good first stop for any worker who has earned income is to simply fund an IRA to the maximum–$6,000 for investors under age 50 and $7,000 for those over 50. Such accounts are very easy to set up, and the money can be invested in a huge array of options. Contributing to an IRA can provide a terrific building block for retirement security. A person assiduously investing $6,000 a year in an IRA for 40 years who enjoyed 6% growth on her money would have a little over $920,000 at the end of the period.

2) Assess whether self-employment accounts are an option.

For people who are self-employed, there are a host of options for tax-advantaged retirement savings. Some of them are quite similar to what 401(k) investors have, except that there can be setup costs and oversight responsibilities. An investment in a conventional IRA, an individual 401(k), a SEP or SIMPLE IRA’s are all good investment ideas.

3) Assess whether an HSA is an option.

While by no means a first line of defense for people without a 401(k), a health savings account is a decent ancillary retirement account option for people covered by a high-deductible healthcare plan.

4) Invest in a tax-efficient way in a taxable brokerage account.

While it’s ideal to invest in vehicles that provide some type of a tax benefit, people without a company retirement plan can also invest tax-efficiently inside of a taxable account. The key is to select investments that incur few taxes on an ongoing basis.

5) Be part of the solution.

Finally, if you work for a small employer that lacks a company retirement plan, consider offering to assist your employer in figuring out how to get one off the ground. Setting up such a plan has gotten cheaper and less complicated in recent years, and your employer may welcome a financially savvy partner to help with some of the research and vetting.

As always, if you have any questions about your current 401(k) or need help investing money in order to supplement a lack of one, please reach out to us and we would be happy to discuss your future financial goals.  

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