Author Topic: Question for those without access to a 401k...  (Read 1994 times)

k_to_the_v

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Question for those without access to a 401k...
« on: August 27, 2015, 03:21:33 PM »
I'm not sure if this best under the investor alley forum or the taxes one.

I have worked for larger companies for the majority of my career, and have always had access to a 401k program. Current track this year was to max my 401k (18,000) for tax savings (I'm in a high tax bracket), and then contribute 5500 to a roth (I'm just within the salary requirements to contribute the max amount to roth).

I am considering another job offer with a small company that does not currently offer a company-sponsored 401k. For some reason (probably because I had never had to explore the option before), I had assumed that if I didn't have access to a 401k, I could still contribute the max amount of 18,000 to a traditional IRA. But it seems like the max I can contribute to ANY type of IRA is 5500 a year.

This has serious tax implications for me (to the tune of 12500, not to mention missing out on the addition 5500 in the roth which I don't think I can do). I'm wondering if there is a workaround that I'm missing here.

Can anyone provide insight into the best method of tax deferred or tax advantaged retirement investing in the absence of a 401k?

(Given the role I am being offered, which is focused on growing the company, it certainly is possible that I could initiate a 401k program at the company, which would also allow me to choose the provider...but I'm trying to factor in worse case scenario here).

beltim

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Re: Question for those without access to a 401k...
« Reply #1 on: August 27, 2015, 03:28:04 PM »
Youre not missing anything. If you're an employee at a company that doesn't offer a 401k, there is no mechanism for you to contribute to tax-deferred accounts beyond an IRA (though the maximum salary you or your family is allowed to have while still being able to deduct contributions does increase).

If you're paid as a contractor, then you're considered self-employed and have some options. But as an employee, you're stuck with the usual max or IRA contributions.

mskyle

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Re: Question for those without access to a 401k...
« Reply #2 on: August 27, 2015, 03:54:42 PM »
Yeah, unfortunately, those are the breaks. My (small) company only offers a SimpleIRA, not a 401k, so I can only contribute $12,500, not $18,000. And with a SimpleIRA the company is only able to match up to 3%. Still much better than nothing at all, but a bit of a bummer, especially when I read about people stacking 401(k)s and 457s.

Paul der Krake

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Re: Question for those without access to a 401k...
« Reply #3 on: August 27, 2015, 04:06:12 PM »
You could make the point during the negociations that starting a 401(k) is key to attracting employees (like yourself), and therefore company growth.

That's an easy way to test the waters.

k_to_the_v

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Re: Question for those without access to a 401k...
« Reply #4 on: August 27, 2015, 04:14:32 PM »
Yeah, this is a bummer, but I am definitely going to mention it during our negotiations next week. I am losing out on an actual $4000 in outright tax savings, not even considering the implication of the long term roth tax savings I'll be missing out on.

As you said, the openness to both the question about why no 401k and willingness to discuss starting one will speak well (or not) to his willingness to work with me. I'm actually evaluating two offers right now and anything that helps me make an informed decision is welcome.

beltim

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Re: Question for those without access to a 401k...
« Reply #5 on: August 27, 2015, 04:22:46 PM »
Yeah, this is a bummer, but I am definitely going to mention it during our negotiations next week. I am losing out on an actual $4000 in outright tax savings, not even considering the implication of the long term roth tax savings I'll be missing out on.

Just a small point here - you can save $4000 on taxes this year, but that doesn't mean your savings will actually be that much.  Anything put into a traditional 401k is withdrawn as ordinary income, and subject to ordinary income tax.  Contrast that to after-tax savings, where you pay ordinary income tax on your income, but then capital gains or dividends tax rates on any profits, which are considerably lower than ordinary income tax rates.  Your actual savings can be much smaller than your $4k figure.

Edit: This isn't to say that you shouldn't bring it up in discussions with the company.  I'm just saying that when you do your evaluation of offers, that you use the proper analysis.
« Last Edit: August 27, 2015, 04:29:41 PM by beltim »