Where to stash retirement funds?

March 1, 2007 10:05 AM

I'm an employee at a small business. I need retirement fund ideas beyond the Roth IRA?

I have been working for a small company for the past few months, and am about to finish paying off debt, so I need to start looking at really saving some money for retirement.

Currently I have a Roth IRA, which is going to be fully funded this year, but I want to save more than the $4000 allowed in an IRA this year.

I seem to be stuck in a weird middle ground between self employed and big company. The company I work for doesn't offer any sort of retirement fund of any sort, but I also don't seem to qualify for any of the self-employed options, since I am not self employed.

Is there a good personal plan that I qualify for, or do I need to convince my employer to setup a 401k or similar to make any of this work?

posted by cschneid to Work & Money (9 answers total)

If you're new to the Roth IRA thing, keep in mind that you can still make 2006 contributions up until tax time (although IANAAccountant). So that might be a nice way to sock away some more money right now.

The biggest benefit of a 401k is when there is employer matching (i.e. for every pre-tax dollar you put into the account, your employer puts in a dollar--yay, 100% interest). Small businesses might like the the idea of offering 401k's but they might not be able to offer a match, which renders a lot of the effort moot.

Either way, you can always open your own investment account and buy bonds or mutual funds or stocks or anything else you like. Just because you aren't getting an extra special tax benefit as you would in a Roth or a 401k doesn't mean you can't invest on your own.
posted by bcwinters at 10:38 AM on March 1, 2007

I'd suggest I Will Teach You To Be Rich. I've found it to be a very helpful financial blog. Ramit is pretty good with e-mail as well if you'd like to go with that option.

Sorry I don't have any advice personally, but I am trying to figure this nutso stuff myself too!
posted by spec80 at 10:39 AM on March 1, 2007

Response by poster: spec - I do read I Will Teach you to be Rich, and it's a great blog.

BCWinters - What I was hoping was a tax advantaged savings of some sort. I have a regular brokerage, but a real retirement account has the tax advantage and the inaccessibility advantage (I can't take money out for frivolous things).
posted by cschneid at 10:41 AM on March 1, 2007

If you also need life insurance, investment grade life insurance can serve as both a retirement vehicle and insurance policy. Boiled down to the basics, it works like a Roth IRA in that you put post-tax money in, can choose your investments, and all investment gains are tax-free. Of course a monthly premium for the actual policy is deducted from the account each month as well, so it doesn't necessarily make sense if you don't need life insurance.

You can also look into municipal bonds, which provide tax-free investment gains as well.
posted by chundo at 11:12 AM on March 1, 2007

There are tax free advantaged annuity funds that work sort of like a 401(k) plan. I think these are the same or similar to what the life insurance companies offer. It's a great idea in theory, but most of the companies that provide them charge really high costs.

If you want to look at a tax free annuity, I would suggest you call Vanguard. They consistently charge the lowest fees on almost every type of investment product. Also, from what I have seen, they do not try to sell you stuff you don't need.

Also, read the Motley Fool, if you don't already. They say that you should not buy "investment" life insurance because of the high fees and the general non-transparent nature of how it works.
posted by Mid at 11:26 AM on March 1, 2007

Here's the Motley Fool on the insurance issue. And here's their take on the various retirement investment options out there. Unfortunately, they don't show many tax-advantaged options other than the 401(k), Roth, and regular IRA.

Are you doing both a Roth and regular IRA? That might make sense.
posted by Mid at 11:38 AM on March 1, 2007

Response by poster: I am doing a Roth IRA only, since I'm young, and they share the $4000 dollar cap for contributions, they don't add together.

That variable annuity looks very cool, I need to give them a call and see how it all works.

I'm just sort of disheartened that I qualify for almost nothing big in the way of retirement accounts.
posted by cschneid at 12:27 PM on March 1, 2007

Are you doing both a Roth and regular IRA? That might make sense.

Not really. If you can contribute to a Roth, you should, assuming you can max it out. Because the Roth is post-tax money, putting $4000 into it is like putting, say, $5000 into a regular IRA, except you can't put $5000 into a regular IRA because the limit's $4000. (This year.)

Also, the total amount you can contribute to both types of IRAs is $4000, you can't contribute $4000 to each.

If you have any self-employment (freelancing/contract) income at all, there are tax-advantaged ways to sock some of that away.
posted by kindall at 12:27 PM on March 1, 2007

I've heard almost nothing but bad things about variable annuities - not so much the concept of getting money for life, but the practice of buying them in the first place.

My financial guru (Clark Howard, has a consumer radio show syndicated nation-wide, you might know him) uses a really annoying alarm klaxon whenever anyone asks about variable annuities. Apparently the problem is that they generally require HUGE up-front fees and commissions. So be sure to read the fine-print.
posted by yggdrasil at 11:33 AM on March 2, 2007