Author Topic: Possibly going to employer without 401k offering.  (Read 3636 times)

TexasRunner

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Possibly going to employer without 401k offering.
« on: September 07, 2016, 12:02:05 PM »
I am considering switching employers.  The new employer doesn't offer a 401k at all.

I searched the threads but couldn't find any specific answers:

(1) can you deposit into 401k pre-tax without employer assistance?
(2) how would someone go about doing this? (Especially considering the tax-free/pre-tax depositing)
(3) If there is no employer match, is the max contribution higher for me?

Thanks guys.

johnny847

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Re: Possibly going to employer without 401k offering.
« Reply #1 on: September 07, 2016, 12:08:02 PM »
I am considering switching employers.  The new employer doesn't offer a 401k at all.

I searched the threads but couldn't find any specific answers:

(1) can you deposit into 401k pre-tax without employer assistance?
(2) how would someone go about doing this? (Especially considering the tax-free/pre-tax depositing)
(3) If there is no employer match, is the max contribution higher for me?

Thanks guys.

1) Unless you're self employed, no. And technically the answer to your question is just no period, since if you're self employed you're your own employer and that's employer assistance ;)
2) Irrelevant since answer to above is no.
3) No.

terran

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Re: Possibly going to employer without 401k offering.
« Reply #2 on: September 07, 2016, 12:23:48 PM »
If you (and your spouse) don't have a retirement plan at work you can fully deduct a traditional IRA contribution regardless of income, so do that.

Other than that, the best you can do is make sure what is offered by the new employer is worth losing the 401k and read up on tax efficient investing in a taxable account.: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #3 on: September 07, 2016, 12:49:14 PM »
Thanks for the link. :)

Useful info:  I'm in a low tax bracket.  Does this mean I should use a Roth IRA to protect growth and future withdraws rather than a traditional?

How useful would it be to become self-employed and work on a contract basis with new employer (I could probably get them to swing for this)?  Are the 401k benefits worth this effort compared to a IRA?

Thanks guys!

Dezrah

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Re: Possibly going to employer without 401k offering.
« Reply #4 on: September 07, 2016, 01:26:44 PM »

How useful would it be to become self-employed and work on a contract basis with new employer (I could probably get them to swing for this)?  Are the 401k benefits worth this effort compared to a IRA?


If you are self-employed, you are responsible for tracking and paying your own quarterly income taxes.  This is a hassle, but not a huge deal.

However, part of being self-employed is you also have to pay both the employer and the employee portion of the payroll taxes (SS+Medicare) which is effectively an additional 7.65% that you have to pay instead of your employer.  If you were high income and maxing out an individual 401k, this might be worth it but if you describe yourself as low-income, it's probably less ideal.

Plus, if your duties effectively make you an employee in all but name, your employer might get in trouble with the Department of Labor if they're caught.  They may or may not be willing to risk this.

Are you already maxing out your IRAs?  This is $11k total for both you and your spouse.  If not, focus on achieving that and don't worry about the contract employee stuff until you're ready to go freelance.

As a general rule, IRAs tend to be prefered tax-efficient vehicles since they tend to have lower fees and more selection of funds.

terran

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Re: Possibly going to employer without 401k offering.
« Reply #5 on: September 07, 2016, 01:33:15 PM »
In addition to the self employment tax issues (which I agree, at a low income are a bigger deal than gaining 401k space), realize that being classified as an employee vs contractor is about more than what you and the employer call you. There are actual requirements about how the employment arrangement must be structured (such as how much control they have over your time and how you do the job): https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee


TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #6 on: September 07, 2016, 01:42:28 PM »
Thanks for the input guys.  Maybe five to ten years down the road the contractor route will make sense (some of the perks of contract work look nice too!) but right now I'll just utilize the Roth route.  I forgot I can contribute for myself and my spouse.  That will gets us close to our desired level of savings for now, and I can just do everything else in my taxable vanguard account.

It also wouldn't work because they have "treated any [other] worker holding a substantially similar position as an employee for any periods beginning after 1977".  For me to go on as a contractor, we would need to define a new role among other things.  Not worth it at this point.

Thank you for the advice guys/gals!

frugaliknowit

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Re: Possibly going to employer without 401k offering.
« Reply #7 on: September 07, 2016, 02:57:16 PM »
A way to further your savings (when there's no 401k, as in my case) is to pre-pay mortgage (if you have one).  I consider this akin to the low risk or bond portion of a portfolio.  Another is to just open a taxable account and put money into a low turnover fund. 

TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #8 on: September 07, 2016, 03:05:50 PM »
A way to further your savings (when there's no 401k, as in my case) is to pre-pay mortgage (if you have one).  I consider this akin to the low risk or bond portion of a portfolio.  Another is to just open a taxable account and put money into a low turnover fund.

Good point.  I'm already there simply because I wanted to "push" my payments further down the curve and be paying extra principle each month with the standard payment.  The first payment a few years back where I saw "140.05$" worth of principle payment on 100k of dept I said "ah hell no!".  I had just paid 800$ and only 140$ of that actually went to the 'ownership'.

It is a good point though...  I might do that before going to heavily into taxable-investment simply because a paid-off house is part of my FI strategy. I feel brick and mortar in a house or property would be a significant asset in a massive market downturn.  A paid-off house can make living at 5000$ a year do-able (if only for a short term).

Dezrah

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Re: Possibly going to employer without 401k offering.
« Reply #9 on: September 08, 2016, 08:38:23 AM »
A way to further your savings (when there's no 401k, as in my case) is to pre-pay mortgage (if you have one).  I consider this akin to the low risk or bond portion of a portfolio.  Another is to just open a taxable account and put money into a low turnover fund.

Good point.  I'm already there simply because I wanted to "push" my payments further down the curve and be paying extra principle each month with the standard payment.  The first payment a few years back where I saw "140.05$" worth of principle payment on 100k of dept I said "ah hell no!".  I had just paid 800$ and only 140$ of that actually went to the 'ownership'.

It is a good point though...  I might do that before going to heavily into taxable-investment simply because a paid-off house is part of my FI strategy. I feel brick and mortar in a house or property would be a significant asset in a massive market downturn.  A paid-off house can make living at 5000$ a year do-able (if only for a short term).

I apologize if I misunderstand.  It sounds like you may have been pre-paying your mortgage instead of paying down principal. 

Pre-paying is just effectively paying early but will do nothing to reduce your interest or total payments.  All pre-paying does is allow you to skip a month if you felt like it.  If you were leaving the country for an extended vacation you might pre-pay so you don't miss your regular payment schedule.  Frankly if your bank is encouraging you to pre-pay, that's preying on your ignorance and borderline unethical.

Paying down principal means whatever you pay only goes toward the principal and none to the interest payment.  The extra payment goes 100% toward the equity (aka ownership) in your house.  You want to do this because your next regular payment will now have slightly less interest owed.  You're not allowed to skip a regular payment with this method but this is absolutely the route you want to take to lower your total payments.

Call your bank and make it absolutely clear that you want any payment amount above the regular mortgage to go to principal only.  Then watch them like hawks because I suspect they'll keep trying to screw you over.

TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #10 on: September 08, 2016, 09:23:19 AM »
Sorry, it does read that way.

Yes, I was meaning principle payment only.  :)  By 'pushing down the curve' I meant getting further along on the principle vs interest curve.  My bank did try to screw me over though when they sold my mortgage to another company and then bought it back a few months later and tried to reset the point at which PMI would drop off.  Financial companies suck. 

chasesfish

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Re: Possibly going to employer without 401k offering.
« Reply #11 on: September 08, 2016, 02:29:40 PM »
Write your congressman and senator and ask the IRS reconsider limits for a traditional IRA.  The system is rigged towards employer sponsored (high fee) plans

TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #12 on: September 08, 2016, 03:09:46 PM »
Good point.  I didn't realize the tax-breaks leaned so far towards employer sponsored 401k.  https://www.irs.gov/retirement-plans/roth-comparison-chart.  5,500$ compared to 18,000$ AND 401k is pre-friggin-tax.  That sucks.  At least the growth is protected. 

I'll write them since its 4500$ a year in extra taxes (ignoring deductions).  That sucks.


CanuckExpat

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Re: Possibly going to employer without 401k offering.
« Reply #13 on: September 08, 2016, 11:59:06 PM »
Are you currently employed by a firm that offers a 401k? Can you front load your contributions currently, so you max out the 18k limit for the year before changing jobs?

TexasRunner

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Re: Possibly going to employer without 401k offering.
« Reply #14 on: September 09, 2016, 10:20:11 AM »
Are you currently employed by a firm that offers a 401k? Can you front load your contributions currently, so you max out the 18k limit for the year before changing jobs?

It is likely that I don't have enough time at the current job, even if I put in 100% of my paycheck (plus the current match is 5% of my contributions up to 7% of my pay-  in other words, not great).  Good thought though.