Author Topic: If my employer doesn't offer a 401k, and I've maxed out an IRA, what's next?  (Read 4176 times)

bigalsmith101

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I'm new to this investing "game", but am no stranger to saving money, so I've now come to a scenario that I need help navigating.

Neither my employer, nor my wife's has a 401k plan or any other sort of retirement program available.

We are easily fully funding our IRA's, and will have about $30-$35k+ to invest for our retirement.

What are our options for best maximizing our efforts to best capitalize on any options we can exploit? From the research I've done, it looks like non tax advantaged accounts are our only options.

Any advice?

frugaliknowit

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Once you have whatever Emergency Fund you feel you need (not going into a debate on this...) and have savings for near term purchases (such a new car in 6 months, dental surgery in 8 months, etc.), you can:

1.  To the extent you want to do some low risk investing, pay off mortgage principal (arguably, you are young to be doing this, but you may have a goal to have a paid for home as of a certain date...). 
2.  Invest in "low turnover" index funds in whatever mix you feel is appropriate.  You can also invest in funds specifically designed to be tax efficient.  Vanguard calls them "Tax Managed" such that they have low turnover.

NoStacheOhio

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Are they paying you on a W-2 or a 1099?

money beard

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If I am understanding your situation correctly, then all you can do is (1) look for other tax advantaged space like a health savings account and (2) start your taxable account.

Frankly if your employer doesn't have a 401K I'll be real surprised if they are offering advanced stuff like HSA. It's probably time to start your taxable brokerage account.  It sucks that you have run out of tax advantaged space, but on the bright side the taxable account has a lot more flexibility.  For example, when people retire early with 100% of their funds in 401Ks and Roths, they have to do a lot of interesting tricks to get that money out in a timely manner (google roth conversion ladder).  If your taxable account is your main retirement savings vehicle you don't have to bother with any of that, and if the capital gains tax remains set up the way it is now, you will pay no tax on your gains anyway assuming that you have low/no W2 income in retirement.  It isn't as good as the benefits of a 401K, but it isn't without its own advantages too.

nereo

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MDM's order of investing is a great starting point:
http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153

Given your lack of a 401(k) and assuming no debt or HSA option you are left with paying down debt <5% and investing in taxable accounts.
If it were me I'd just start cramming money into my Vanguard index fund.  If someday you get offered a 401(k) you can (almost) immediately max that out by leveraging your savings.

congrats on being in this enviably position.  $35k/year in savings after putting $11k towards IRAs is solid.

trammatic

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First, some employers [non-profits] have 403(b)s instead of 401(k)s.  If that's available, then use it instead.

Are they paying you on a W-2 or a 1099?
My thought exactly.  If you're a 1099 employee, then you're technically a contractor and a business owner.  A CPA can help you set up a self-employed retirement account.  If you're a W-2 employee, then chances are you work for an extremely small company, and you can approach the head of HR or the CEO and volunteer to spearhead the effort to start a 401(k) plan.  I've had a couple friends succeed there.

MichaelB

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Are you sure the HSA isn't an option? You don't have to open them through your employer-- you just have to be covered by a HDHP. If it's just you covered by the plan, you can do $3350 for 2016 ($3400 for 2017). If it's the both of you, you can do $6750 per tax year.

NoStacheOhio

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First, some employers [non-profits] have 403(b)s instead of 401(k)s.  If that's available, then use it instead.

Are they paying you on a W-2 or a 1099?
My thought exactly.  If you're a 1099 employee, then you're technically a contractor and a business owner.  A CPA can help you set up a self-employed retirement account.  If you're a W-2 employee, then chances are you work for an extremely small company, and you can approach the head of HR or the CEO and volunteer to spearhead the effort to start a 401(k) plan.  I've had a couple friends succeed there.

Fidelity/Schwab/Vanguard will be happy to set up a SEP account without a CPA. ;-)

chasesfish

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Write your congressman and request the IRA limits be increased to match the 401k limits.   Its a terrible issue they need to correct.

nereo

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Write your congressman and request the IRA limits be increased to match the 401k limits.   Its a terrible issue they need to correct.
I dunno... as much as I personally like paying no taxes on my IRA contributions, I'm not sure allowing married couples $36k in IRA space is what's best for society in general.

Then again, the majority of people don't take advantage of what they've got, so it'd likely be folks like us that would benefit, and I'd wager we already are more tax saavy (and therefore pay less in taxes overall) than our peers.

bigalsmith101

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Once you have whatever Emergency Fund you feel you need (not going into a debate on this...) and have savings for near term purchases (such a new car in 6 months, dental surgery in 8 months, etc.), you can:

1.  To the extent you want to do some low risk investing, pay off mortgage principal (arguably, you are young to be doing this, but you may have a goal to have a paid for home as of a certain date...). 
2.  Invest in "low turnover" index funds in whatever mix you feel is appropriate.  You can also invest in funds specifically designed to be tax efficient.  Vanguard calls them "Tax Managed" such that they have low turnover.

This is good info. I'll follow up with some info.

We currently have a cash emergency fund large enough to cover 3-4 months expenses, as well as a line of credit for $10k at 8% if needed. We have no near term purchases lined up, and budget our regular expenses such that our travel rewards credit card is paid off each month.

We currently live in an ultra affordable duplex that costs us $850/mo that is 1.5mi from my work, and 2.5mi from wifey's. Comparable rentals in our area are easily $1050-$1100 for what we rent. It's awesome. We're looking at homes in our area (25 miles north of Seattle) and thinking about buying when I find employment that I am excited about, rather than the "job" I currently fill. Homes in our area are $300-$400k. So that will be a concern when the time comes, and will decrease our savings rate, but as of yet we have no mortgage to pay down, though are debating the merits of saving a 20% down payment.


Are they paying you on a W-2 or a 1099?

I am a W-2 employee. As such, I don't have access to a SEP IRA or other such awesome option.

If I am understanding your situation correctly, then all you can do is (1) look for other tax advantaged space like a health savings account and (2) start your taxable account.

Frankly if your employer doesn't have a 401K I'll be real surprised if they are offering advanced stuff like HSA. It's probably time to start your taxable brokerage account.  It sucks that you have run out of tax advantaged space, but on the bright side the taxable account has a lot more flexibility.  For example, when people retire early with 100% of their funds in 401Ks and Roths, they have to do a lot of interesting tricks to get that money out in a timely manner (google roth conversion ladder).  If your taxable account is your main retirement savings vehicle you don't have to bother with any of that, and if the capital gains tax remains set up the way it is now, you will pay no tax on your gains anyway assuming that you have low/no W2 income in retirement.  It isn't as good as the benefits of a 401K, but it isn't without its own advantages too.

You understand correctly. I work for a Canadian company that has a branch in the US. I have a fully paid for health insurance plan that also covers my wife, but that is the extent of the benefits offered, aside from a very competitive vacation, holiday, and sick leave allowance. Taxable accounts are looking to be the option.

MDM's order of investing is a great starting point:
http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153

Given your lack of a 401(k) and assuming no debt or HSA option you are left with paying down debt <5% and investing in taxable accounts.
If it were me I'd just start cramming money into my Vanguard index fund.  If someday you get offered a 401(k) you can (almost) immediately max that out by leveraging your savings.

congrats on being in this enviably position.  $35k/year in savings after putting $11k towards IRAs is solid.

Thanks for the props. Indeed neither of us has access to a 401k, have no debt, and have no HSA option. I've been actively looking for a new job over the past several months, and just got a hit on two different jobs. Hopefully one of them pans out. Even better if either of them offers a 401k so I can max it out :)

Are you sure the HSA isn't an option? You don't have to open them through your employer-- you just have to be covered by a HDHP. If it's just you covered by the plan, you can do $3350 for 2016 ($3400 for 2017). If it's the both of you, you can do $6750 per tax year.

I'm not sure about shit to be honest. But my employer does not offer an HSA as far as I'm aware. Is that something that I can set up myself?                                                                                                                                                               

Write your congressman and request the IRA limits be increased to match the 401k limits.   Its a terrible issue they need to correct.

I do find it to be a serious form of bullshit that individuals that aren't able to acquire a 401k plan through an employer have no other option to invest in tax deferred accounts. Seems totally unreasonable.

NoStacheOhio

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Write your congressman and request the IRA limits be increased to match the 401k limits.   Its a terrible issue they need to correct.
I dunno... as much as I personally like paying no taxes on my IRA contributions, I'm not sure allowing married couples $36k in IRA space is what's best for society in general.

Then again, the majority of people don't take advantage of what they've got, so it'd likely be folks like us that would benefit, and I'd wager we already are more tax saavy (and therefore pay less in taxes overall) than our peers.

I think it's totally reasonable if they don't have access to an employer-sponsored plan.

Enigma

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If you have a "fully paid for health insurance plan" like you stated without a "High" Deductible that must be met before the insurance pays most of the expenses then you are not eligible for a tax sheltered HSA (Health Savings Account).  Your "High" deductible will need to be at least $2,600 per family (according to some quick searches) to be considered eligible.

bigalsmith101

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If you have a "fully paid for health insurance plan" like you stated without a "High" Deductible that must be met before the insurance pays most of the expenses then you are not eligible for a tax sheltered HSA (Health Savings Account).  Your "High" deductible will need to be at least $2,600 per family (according to some quick searches) to be considered eligible.

My employer pays the premium on my policy, and up to $400/mo to add a spouse to the same plan. In my case, as my wife is 27, adding her costs less than $400, so we pay $0 to include her on the policy. (My coworkers each pay ~150/mo to add their 50yr/old wives).

Our deductible is $1000/year ($2k per family), with out of pocket maximums of $4000/year ($8k per family).

As per your quick research, I'm not eligible for an HSA.

 

MoonLiteNite

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I skimmed over the comments and saw some people saying "if they don't offer a 401k, they most likely won't offer a HSA"
Ummm employees may not "offer" an HSA, but an HSA is an account YOU make for YOU. So provided you have a HDHP, you can create an HSA with any broker/bank who has them.
You just won't get payroll deductions so you will be paying taxes on your income, but get credit for it during tax time.


nereo

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Write your congressman and request the IRA limits be increased to match the 401k limits.   Its a terrible issue they need to correct.
I dunno... as much as I personally like paying no taxes on my IRA contributions, I'm not sure allowing married couples $36k in IRA space is what's best for society in general.

Then again, the majority of people don't take advantage of what they've got, so it'd likely be folks like us that would benefit, and I'd wager we already are more tax saavy (and therefore pay less in taxes overall) than our peers.

I think it's totally reasonable if they don't have access to an employer-sponsored plan.
Ah, yes... I agree that if no 401(k) is available a person ought to have more room in their IRA.
What I am uncomfortable with is the idea that a couple could have 401(k)s AND $18k each to put in an IRA. Under such a scenario hypothetical family could bring in $90k and have no federal tax liability.

What seems more 'fair' to me would if everyone were to get the same amount of tax-deferred head space. For example each person is eligible for $25k, split however they choose across a 401(k)/403(b) (if offered) and their IRA - choosing either traditional or ROTH.  Companies can still contribute towards a worker's 401(k).

bigalsmith101

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I skimmed over the comments and saw some people saying "if they don't offer a 401k, they most likely won't offer a HSA"
Ummm employees may not "offer" an HSA, but an HSA is an account YOU make for YOU. So provided you have a HDHP, you can create an HSA with any broker/bank who has them.
You just won't get payroll deductions so you will be paying taxes on your income, but get credit for it during tax time.

You missed my post immediately preceding yours.

"My employer pays the premium on my policy, and up to $400/mo to add a spouse to the same plan. In my case, as my wife is 27, adding her costs less than $400, so we pay $0 to include her on the policy. (My coworkers each pay ~150/mo to add their 50yr/old wives).

Our deductible is $1000/year ($2k per family), with out of pocket maximums of $4000/year ($8k per family).

As per quick research, I'm not eligible for an HSA."