Saving for retirement with no employer retirement program
March 23, 2013 2:46 PM Subscribe
How to save for retirement when my employer offers no retirement savings program and I cannot contribute to an IRA tax-free? Details inside.
I am 35, married, and live in the U.S. (New York). My current employer does not offer any kind of retirement benefits—no 401(k), nothing. They've hinted they might, and I've made my interest in such an offering clear, but it's a small company and I doubt we'll see any movement on that front.
Meanwhile, I have for many years maxed out my IRA contribution annually. It's not nearly as much as you can put into a 401(k), say, but it's not nothing. However, my wife's income is now much higher than mine, meaning that my IRA contributions are no longer tax-deductible. (I also cannot start a Roth IRA for the same reason.)
So what options, if any, do I have, aside from socking away savings that I've paid full taxes on? Thank you.
I am 35, married, and live in the U.S. (New York). My current employer does not offer any kind of retirement benefits—no 401(k), nothing. They've hinted they might, and I've made my interest in such an offering clear, but it's a small company and I doubt we'll see any movement on that front.
Meanwhile, I have for many years maxed out my IRA contribution annually. It's not nearly as much as you can put into a 401(k), say, but it's not nothing. However, my wife's income is now much higher than mine, meaning that my IRA contributions are no longer tax-deductible. (I also cannot start a Roth IRA for the same reason.)
So what options, if any, do I have, aside from socking away savings that I've paid full taxes on? Thank you.
talk to a financial adviser. i'd think you could start a 401k without an employer sponsor, but i could be wrong. it seems like your company could at least offer some 401k options without actually doing any matching if it's not possible to open a tax deffered retirement account on your own. if you're household is really making so much money that you don't qualify for IRA contributions you really should talk to a financial adviser at least once. i suggest finding one that charges you a fee rather than getting paid from commissions.
is your wife taking advantage of her employer's 401k plan?
if you don't own a home you could buy one, and take advantage of the tax-deductible interest.
posted by cupcake1337 at 3:22 PM on March 23, 2013
is your wife taking advantage of her employer's 401k plan?
if you don't own a home you could buy one, and take advantage of the tax-deductible interest.
posted by cupcake1337 at 3:22 PM on March 23, 2013
Are you eligible for a Roth IRA? In a way at your age even better because the funds you pull out decades in the future aren't taxable at that point. With a traditional IRA, they are.
You can also still do a traditional IRA and get the tax-deferred benefits of it, just not the tax deduction in the year of contribution. If you're investing for the long term, still worth it.
posted by mono blanco at 3:25 PM on March 23, 2013 [1 favorite]
You can also still do a traditional IRA and get the tax-deferred benefits of it, just not the tax deduction in the year of contribution. If you're investing for the long term, still worth it.
posted by mono blanco at 3:25 PM on March 23, 2013 [1 favorite]
There are no solutions given the parameters of the question. If you insist on something that gives you a tax deduction, then your IRA is the vehicle that is available.
You may consider going outside your protected zone. If you start a business, you can use retirement vehicles that would allow you to contribute larger percentages of what you make in that business.
But the answer is best given by giving up this restriction:
"aside from socking away savings that I've paid full taxes on"
Put away money that you have paid taxes on.
1. Put it into a regular-payment annuity. This is a vehicle that also protects the earnings on the principal you have contributed. As the earnings grow over the years, tax-free, the total value increases. Like an IRA, you pay the taxes on that increase (as ordinary income) as the funds are paid out.
2. Put in into a non-deductible IRA. You get no upfront deduction but you still get the benefit of tax-free growth over the years.
3. Put in into an investment for long-term growth. Assuming that capital gains are still taxed at favored rates when you need the money, which is assuredly not guaranteed, you have the benefit of long-term growth, free of taxes, and lower taxes when you do sell.
posted by yclipse at 3:26 PM on March 23, 2013 [2 favorites]
You may consider going outside your protected zone. If you start a business, you can use retirement vehicles that would allow you to contribute larger percentages of what you make in that business.
But the answer is best given by giving up this restriction:
"aside from socking away savings that I've paid full taxes on"
Put away money that you have paid taxes on.
1. Put it into a regular-payment annuity. This is a vehicle that also protects the earnings on the principal you have contributed. As the earnings grow over the years, tax-free, the total value increases. Like an IRA, you pay the taxes on that increase (as ordinary income) as the funds are paid out.
2. Put in into a non-deductible IRA. You get no upfront deduction but you still get the benefit of tax-free growth over the years.
3. Put in into an investment for long-term growth. Assuming that capital gains are still taxed at favored rates when you need the money, which is assuredly not guaranteed, you have the benefit of long-term growth, free of taxes, and lower taxes when you do sell.
posted by yclipse at 3:26 PM on March 23, 2013 [2 favorites]
I know this isn't exactly what you asked, but my small firm didn't have a 401k when I started and I talked them into this very inexpensive small business 401k fund that uses index funds
http://www.employeefiduciary.com/
It's so cheap and easy you might mention it.
posted by bananafish at 3:27 PM on March 23, 2013
http://www.employeefiduciary.com/
It's so cheap and easy you might mention it.
posted by bananafish at 3:27 PM on March 23, 2013
It is still worth it to use an IRA, just with the understanding that the funds are already post-tax (it would just be an investment account really... but better then any savings account by far).
Also, perhaps your employer is uneasy about making matching contributions, which is typical for a 401k... However some companies with the recession have lowered their matching contribution for their own cost purposes. Perhaps your employer could be convinced to try a 401k implementation that provides they only put in 50% of what you contribute. Sure, it isn't going to great, but it is a way to try and find a pre payroll tax way to make retirement savings.
posted by Bodrik at 6:37 PM on March 23, 2013
Also, perhaps your employer is uneasy about making matching contributions, which is typical for a 401k... However some companies with the recession have lowered their matching contribution for their own cost purposes. Perhaps your employer could be convinced to try a 401k implementation that provides they only put in 50% of what you contribute. Sure, it isn't going to great, but it is a way to try and find a pre payroll tax way to make retirement savings.
posted by Bodrik at 6:37 PM on March 23, 2013
Do you do any consulting or freelancing on the side? Is it plausible that you could be doing some? The IRS lets self-employed people set up 401(k)s and you can even double your own contributions, basically--once as the employee and once as the employer.
Here's more info: http://articles.latimes.com/2011/may/15/business/la-fi-perfin-20110515
posted by Colonel_Chappy at 7:53 PM on March 23, 2013
Here's more info: http://articles.latimes.com/2011/may/15/business/la-fi-perfin-20110515
posted by Colonel_Chappy at 7:53 PM on March 23, 2013
Any possibility of finding a new employer next year who does offer a 401(k)? It's a pretty important benefit.
posted by Dansaman at 9:18 PM on March 23, 2013
posted by Dansaman at 9:18 PM on March 23, 2013
Response by poster: Thanks for all the answers. Here are my responses to various queries and ideas:
First of all, there's nothing wrong with socking away savings that you've paid full taxes on. In fact it's a good thing, if you can afford it.
Absolutely. I already do this. Perhaps my framing was unclear, but that's why I asked for options "aside" from doing this, because I'm already doing this.
Second, as I understand it, you can always contribute to an IRA.
Yes, I do this as well, as mentioned in the post, despite the lack of a tax deduction.
talk to a financial adviser.
Good idea. I was looking for information on possible retirement ideas before such a meeting—in other words, trying to "do my homework."
if you're household is really making so much money that you don't qualify for IRA contributions you really should talk to a financial adviser at least once.
I wouldn't be asking this question if this weren't the case. This issue only recently cropped up in our household.
is your wife taking advantage of her employer's 401k plan?
Her employer offers some sort of alternative program (can't recall which), but yes she does. This of course is separate from my own retirement funds.
if you don't own a home you could buy one, and take advantage of the tax-deductible interest.
We do not own a home. We do not wish to.
Are you eligible for a Roth IRA?
As I mentioned in the post, I am not. See here.
If you start a business, you can use retirement vehicles that would allow you to contribute larger percentages of what you make in that business.
I work a demanding full-time job, have no business experience, and no desire to start a business.
But the answer is best given by giving up this restriction: "aside from socking away savings that I've paid full taxes on"
As I note above, it's not a "restriction," and I'm sorry my wording seemed to indicate it was. I was looking for options beyond merely that.
Put it into a regular-payment annuity.
That sounds interesting. Can you tell me more, yclipse?
Put in into a non-deductible IRA.
As noted in my post and elsewhere, I am doing this.
Put in into an investment for long-term growth.
Sure. But again, no immediate tax advantage, and as you note, no guarantee of any tax advantage ever.
Bananafish, thank you for the idea and the link. Perhaps I could interest my employer in a no-match 401(k).
Try a back door IRA
This is quite interesting. I wasn't aware of such a thing. Reading more now. I think I'll talk to a financial advisor about this.
Do you do any consulting or freelancing on the side? Is it plausible that you could be doing some?
Yes, I do some. Thanks for the link, Colonel_Chappy.
Any possibility of finding a new employer next year who does offer a 401(k)?
Not really, no.
posted by Conrad Cornelius o'Donald o'Dell at 11:20 PM on March 23, 2013
First of all, there's nothing wrong with socking away savings that you've paid full taxes on. In fact it's a good thing, if you can afford it.
Absolutely. I already do this. Perhaps my framing was unclear, but that's why I asked for options "aside" from doing this, because I'm already doing this.
Second, as I understand it, you can always contribute to an IRA.
Yes, I do this as well, as mentioned in the post, despite the lack of a tax deduction.
talk to a financial adviser.
Good idea. I was looking for information on possible retirement ideas before such a meeting—in other words, trying to "do my homework."
if you're household is really making so much money that you don't qualify for IRA contributions you really should talk to a financial adviser at least once.
I wouldn't be asking this question if this weren't the case. This issue only recently cropped up in our household.
is your wife taking advantage of her employer's 401k plan?
Her employer offers some sort of alternative program (can't recall which), but yes she does. This of course is separate from my own retirement funds.
if you don't own a home you could buy one, and take advantage of the tax-deductible interest.
We do not own a home. We do not wish to.
Are you eligible for a Roth IRA?
As I mentioned in the post, I am not. See here.
If you start a business, you can use retirement vehicles that would allow you to contribute larger percentages of what you make in that business.
I work a demanding full-time job, have no business experience, and no desire to start a business.
But the answer is best given by giving up this restriction: "aside from socking away savings that I've paid full taxes on"
As I note above, it's not a "restriction," and I'm sorry my wording seemed to indicate it was. I was looking for options beyond merely that.
Put it into a regular-payment annuity.
That sounds interesting. Can you tell me more, yclipse?
Put in into a non-deductible IRA.
As noted in my post and elsewhere, I am doing this.
Put in into an investment for long-term growth.
Sure. But again, no immediate tax advantage, and as you note, no guarantee of any tax advantage ever.
Bananafish, thank you for the idea and the link. Perhaps I could interest my employer in a no-match 401(k).
Try a back door IRA
This is quite interesting. I wasn't aware of such a thing. Reading more now. I think I'll talk to a financial advisor about this.
Do you do any consulting or freelancing on the side? Is it plausible that you could be doing some?
Yes, I do some. Thanks for the link, Colonel_Chappy.
Any possibility of finding a new employer next year who does offer a 401(k)?
Not really, no.
posted by Conrad Cornelius o'Donald o'Dell at 11:20 PM on March 23, 2013
Annuities can be single-payment (you plunk down $x and the company pays out $y each month at a time you specify) or regular payment (you pay in $z each month for a specified time, and the company pays out $y each month at a time you specify). I was hoping that there would be some information at How Stuff Works. There is.
posted by yclipse at 5:45 AM on March 24, 2013 [1 favorite]
posted by yclipse at 5:45 AM on March 24, 2013 [1 favorite]
seconding an annuity, you probably should get a deferred annuity.
posted by cupcake1337 at 5:59 PM on March 24, 2013
posted by cupcake1337 at 5:59 PM on March 24, 2013
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First of all, there's nothing wrong with socking away savings that you've paid full taxes on. In fact it's a good thing, if you can afford it. So I think the answer is to sock away savings you've paid full taxes on.
Second, as I understand it, you can always contribute to an IRA. You won't get the tax writeoff on this year's taxes, but the capital gains / dividends / interest / whatever will still be tax deferred.
posted by Flunkie at 3:22 PM on March 23, 2013