We hearing people saying all too often “My employer doesn’t offer a Retirement Plan”
If thinking about retirement makes you queasy, you can take some solace in knowing that you are not alone. A recent report from the Federal Reserve found one-fourth of American workers haven’t saved a dime toward their retirement. This includes 17 percent of Americans 45 to 59 years old and could retire and 12 percent of those 60 or older.
Access to an employer-offered retirement savings plan, or a lack thereof, is one of the biggest contributors to this statistic. A recent report from AARP found 55 million Americans work for a company that does not offer a traditional 401(k) or an IRA and are probably wondering, “what do I do if my employer doesn’t offer a retirement plan?.
Luckily, there are some options, each of which carries its own set of risks and rewards. Sign up for one of our free online retirement planning events today so you can learn more about your options and meet a certified financial planner who can help you pick one that best fits your needs.
What do I do if my employer doesn’t offer a retirement plan?
One of the biggest advantages of having an employer-administered retirement plan is your ability to have a certain amount of money deducted from your paycheck each cycle and automatically deposited into a retirement savings account. You don’t have to think about transferring the money yourself and, unless you follow every penny of your paycheck, you might not even miss the money when it’s gone.
Unfortunately, these plans are difficult to manage and carry fees that could be cost-prohibitive for small business owners. They aren’t even an option for the 44 million Americans who are self-employed and don’t have a traditional payroll system capable of making automatic deductions.
But there are still some options for people who don’t get a retirement plan through their employer:
- Work and Save – Work and Save retirement programs like OregonSaves, which has helped Oregonians set up 61,000 retirement accounts since its 2017 launch, shift the burden of managing a retirement plan from private employers to the state government. These programs give employees a chance to set up an automatic payroll deduction and deposit that money into a target-date retirement fund the state government manages like a college savings plan. As of 2019, nine other states, including Illinois and California, had set up a similar arrangement. Another 20 states were considering starting one of these programs in their legislature.
- Traditional/Roth IRAs – Nothing’s stopping you from making regular contributions to a traditional or a Roth IRA – an excellent option for people who rolled over a retirement plan from a previous employer before working for a small business and starting a business on their own. Their only drawback, however, is the fact these accounts carry contribution limits each year. For 2021, people can only deposit $6,000 into a traditional or Roth IRA if they’re younger than 50 and $7,000 if they’re 50 or older. These limits make them a good tool to get started on the retirement savings game, but they may not help you save money in a hurry.
- Solo 401(k) –These retirement savings plans let self-employed individuals contribute up to $57,000 of their business’ earned income each year by acting as both an employee and an employer. Individuals can also make an additional $6,000 catch-up contribution if they’re 50 or older. And as an added bonus, self-employed individuals can hire their spouse as an employee to effectively double their maximum contribution each year.
- SEP IRA — SEP IRA’s work like a Solo 401(k) but come with less paperwork. Self-employed individuals can contribute up to 25 percent of their earned income to these plans – with a $57,00 limit per year – and deduct these contributions from your income taxes. These plans are also available to small business owners who are willing to contribute money to an employee’s retirement plan as well as their own.
- SIMPLE IRA – SIMPLE IRAs let individuals who work for a small business with less than 100 employees save up to $13,000 for their retirement each year if they’re younger than 50 and $16,000 a year if they’re 50 or older. The downside of these plans is they require employers to make a matching contribution and that can be a deterrent for small businesses that have a lot of employees.
As you can see, people who don’t have access to an employer-offered retirement savings plan aren’t entirely out of luck when it comes to planning for the future. Sign up for one of our free online retirement planning events today so you can learn more about these options and meet a certified financial planner who can help you get started with one today.