Your employer doesn’t offer a 401k. What do you do?
First, know that 50% of Americans don’t have access to a 401k. There are other options available and we’ll cover those below.
It’s a common situation. My father taught me to contribute to my 401k before I had one of my own. Now that I’m working for a small firm, I don’t have the option.
Luckily, I had a 401k included in my benefits package at my first job. The company contributed 4% automatically, then matched up to 4% of my own contributions.
In other words, electing to contribute 4% of my own salary yielded a 12% contribution to my 401k each year. For example, if you earn a $60,000 salary, you could contribute $2,400 of your own money plus $4,800 of the company’s money.
If you contributed 4% of your salary for 10 years, you would end up with $110,499.41 assuming the market yields 8% per year.
We’re telling you this because you need to know you’re missing out on the fruits of a 401k.
If you have access to a 401k and you aren’t taking advantage of it, enroll in your 401k today.
If you can switch to a job which offers a 401k, you should consider doing so.
However, your company doesn’t offer a 401k. That’s why you’re here. What do you do if your company doesn’t offer a 401k?
How do you save for retirement if your employer doesn’t offer a 401k?
According to Investopedia, you’re not alone. “A 2014 study by Capital One found that just 25% of firms with fewer than 50 employees have deferred contribution plans in place.”
Since you don’t have access to a 401k, you must look at other investment vehicles.
In our 3 Steps to Becoming a Millionaire, we cover opening a brokerage account, setting up a Roth IRA, and finally, why you should setup a Health Savings Account.
In addition, you’ll have to find ways to make up ground on your 401k counterparts.
A 401k comes with a maximum $18,000 per year contribution limit. Compare this to a Traditional IRA at $5,500 per year, you’re potentially losing out on $12,500 in annual retirement savings.
As a matter of fact, if you simply rely on an IRA, you’ll fall behind.
Take advantage of a Roth IRA and HSA
Take advantage of a Health Savings Account.
If you belong to a HDHP (High Deductible Health Plan), you can open an HSA which stays with you for life.
HSAs offer a triple tax break. You contribute pre-tax dollars which grow tax free. Bonus: Most HSAs allow you to invest those funds in the stock market.Health savings accounts offer a triple tax break. How often does the IRS offer that? #personalfinance Click To Tweet
If you end up maxing your contributions to your IRA and HSA, good for you! However, you’re not done yet. You should determine what to do with any additional funds you wish to save.
At this point, you should already have a brokerage account (because you have an IRA).
Using a brokerage account, you can invest your extra savings in low cost mutual funds or ETFs. Don’t be afraid. In the last 20 years, the Dow Jones has earned an average of 8% per year.
Remember, you’re not alone here. Half of Americans don’t have access to a 401k.
- Half of Americans don’t have access to a 401k.
- If you can switch jobs to one which offers a 401k, consider doing it. The benefits of a 401k are life changing.
- The maximum annual IRA contribution is $5,500.
- Health savings accounts can be used as a retirement account. You contribute money pre-tax and it also grows tax-free.
- Once you’ve maxed your IRAs and HSA, add extra funds to your brokerage account and invest in low-cost mutual funds.
What are your tips for others with no 401k program? Share your tips in the comments below.