Author Topic: What are the options when there's no 401K?  (Read 3091 times)

decessus

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What are the options when there's no 401K?
« on: October 07, 2015, 12:14:14 AM »
Let's say you're considering a job offer by a company with no 401K.

The options I see are:

1)  Contribute to Roth, put the rest in taxable index funds/stocks/etc
2)  Contribute to Roth, moonlight on the side so you can contribute to your own SEP IRA which has a limit of ~$45K/year (pretty good)

Is there anything else to be done or other options?

seattlecyclone

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Re: What are the options when there's no 401K?
« Reply #1 on: October 07, 2015, 12:39:07 AM »
Don't forget about a traditional IRA. When you are in a position to save a large percentage of your income, your retirement income (and thus tax bracket) are likely to be smaller during retirement. Pay tax then instead of now.

You could consider asking to be hired on as a contractor instead of an employee, which would allow you to contribute to a SEP plan (or solo 401(k)) without needing to maintain a side business that brings in tens of thousands of dollars.

MDM

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Re: What are the options when there's no 401K?
« Reply #2 on: October 07, 2015, 01:20:52 AM »
Don't forget about a traditional IRA. When you are in a position to save a large percentage of your income, your retirement income (and thus tax bracket) are likely to be smaller during retirement. Pay tax then instead of now.
+1

Note that "Your deduction is allowed in full if you (and your spouse, if you are married) arenít covered by a retirement plan at work."

Not as sanguine about the contractor option: you would need higher pay to compensate for the 7.65% extra self-employment tax, and contractors are often furloughed before company employees.  But if it works for you....

DaveR

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Re: What are the options when there's no 401K?
« Reply #3 on: October 07, 2015, 09:37:29 AM »
Options

3) Contractor - with at minimum a 25% wage premium to cover self-employment taxes, plus (depending on where you are) some form of city and state taxes, medical insurance, general liability insurance, unemployment and worker's comp, plus the extra time and admin costs to manage all that. If you can lock up a long-term contract with early-termination fees (sounds like a mobile phone contract!) that is ideal, but if not then you need to evaluate the risk of unemployment while looking for the next gig. Higher risk = higher pay.

4) Negotiate higher pay - not offering a 401(k) means $18k is subject to taxation, so (depending on marginal tax rate) ask for $5k more. With the stipulation that you'll take a $5k pay cut if they offer a 401k.

5) Tell 'em they are idiots for not offering a 401(k) and that you'll take the job only if they offer one. Fidelity, Ubiquity, Vanguard and others offer plans that cost a few thousand per year in admin fees. The company doesn't have to match, so their total cost would be less than in option #4.

6) Keep looking... honestly, a company that has 3+ non-owner employees has no good reason to not offer a 401k plan.

zolotiyeruki

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Re: What are the options when there's no 401K?
« Reply #4 on: October 07, 2015, 03:31:40 PM »

Note that "Your deduction is allowed in full if you (and your spouse, if you are married) arenít covered by a retirement plan at work."

I feel compelled to point out that this can be a bit misleading, since it implies that "if your employer offers a retirement plan, you can't deduct the contribution."  You lose your ability to deduct tIRA contributions only if you have an employer-sponsored retirement plan AND your income is too high.

(EDIT:typo)
« Last Edit: October 08, 2015, 07:58:38 AM by zolotiyeruki »

MDM

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Re: What are the options when there's no 401K?
« Reply #5 on: October 07, 2015, 03:40:54 PM »
Your lose your ability to deduct tIRA contributions only if you have an employer-sponsored retirement plan AND your income is too high.
Yes.
The quote was indeed specific to the OP's situation.  The full story is in the link embedded before the quote.

Cathy

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Re: What are the options when there's no 401K?
« Reply #6 on: October 07, 2015, 05:23:01 PM »
Note that "Your deduction is allowed in full if you (and your spouse, if you are married) arenít covered by a retirement plan at work."
I feel compelled to point out that this can be a bit misleading, since it implies that "if your employer offers a retirement plan, you can't deduct the contribution." ...

MDM's statement does not "imply" the proposition you state. The proposition that A→B definitely does not imply that ¨A→¨B. That is a well-known logical fallacy commonly referred to as "affirming the consequent". It could also be classified as a failure of reading comprehension because it involves reading something that is not there. If I say "You can buy bubblegum at Walmart", does that imply that "you cannot buy bubblegum at stores other than Walmart"? No, it does not.
« Last Edit: October 07, 2015, 05:43:24 PM by Cathy »

zolotiyeruki

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Re: What are the options when there's no 401K?
« Reply #7 on: October 08, 2015, 08:01:42 AM »
MDM's statement does not "imply" the proposition you state. The proposition that A→B definitely does not imply that ¨A→¨B. That is a well-known logical fallacy commonly referred to as "affirming the consequent". It could also be classified as a failure of reading comprehension because it involves reading something that is not there. If I say "You can buy bubblegum at Walmart", does that imply that "you cannot buy bubblegum at stores other than Walmart"? No, it does not.
You're exactly right, which is why I said "can be misleading" (emphasis added) :)  I was just trying to make sure that nobody else made that same mistake.

frugaliknowit

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Re: What are the options when there's no 401K?
« Reply #8 on: October 08, 2015, 08:15:17 AM »
In addition to what others have said, depending in part on your age/career stage, you could pre-pay mortgage (on top of filling an IRA) in lieu of 401K contributions.

decessus

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Re: What are the options when there's no 401K?
« Reply #9 on: October 08, 2015, 11:52:28 AM »
Thanks, these are good ideas....It looks like the total combined limit for Roth IRA and traditional IRA is $5500 per year...that's not a lot.

MEJG

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Re: What are the options when there's no 401K?
« Reply #10 on: October 08, 2015, 03:54:13 PM »
If no 401k is offered you can use an HSA if offered or an IRA - either Traditional or Roth.  You can also lobby your employer or a retirement plan, they may be able to start offering a SEP or Simple IRA or a 401k.  I just tried to negotiate for a simple Ira and it didn't work out.

Choose between traditional and Roth based on your individual tax situation. At vanguard you can re charaterize your Ira as long as it is before the tax deadline, to make the most of your tax defy able amount if you are nearing the limit.