{"id":10402,"date":"2023-08-09T08:23:59","date_gmt":"2023-08-09T08:23:59","guid":{"rendered":"https:\/\/isafespend.com\/investing\/no-401k-no-problem-alternatives-to-the-employer-sponsored-retirement-plan\/"},"modified":"2023-08-09T08:23:59","modified_gmt":"2023-08-09T08:23:59","slug":"no-401k-no-problem-alternatives-to-the-employer-sponsored-retirement-plan","status":"publish","type":"post","link":"https:\/\/isafespend.com\/?p=10402","title":{"rendered":"No 401(k), No Problem: Alternatives to the Employer-Sponsored Retirement Plan"},"content":{"rendered":"
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Regardless of how much we love our jobs or our line of work, just about all of us look forward to saying “goodbye” when the time comes to retire. Since 401(k)’s and other employer-sponsored plans are the primary retirement vehicles, we bear the responsibility to save for retirement on our own. So what do you do if you don’t have access to an employer-sponsored plan? How do you build your retirement savings when you aren’t given the road map?\u00a0<\/span><\/p>\n

Saving for retirement can be a challenge even when your employer offers you this benefit, and it becomes an even bigger hurdle when you have to figure it out on your own.\u00a0There are an array of different reasons why someone may need to seek out a retirement savings plan on their own:\u00a0they may work as a part-time employee or on a contract basis, at a small business that does not offer any retirement benefits, or they own their own business and are self-employed.\u00a0<\/span><\/p>\n

In a recent study, the Government Accountability Office\u00a0finds that \u201cas many as half of all households with Americans 55 and older have no retirement savings at all,\u201d while T. Rowe Price states that 84 percent of\u00a0millennials want to \u201cmake managing their financial situation a higher priority this year.\u201d The picture seems pretty clear: Americans\u00a0want<\/em>\u00a0to be fiscally responsible. The question is\u00a0how<\/em>\u00a0can they do it, especially if they are not offered a plan through their employer?\u00a0<\/span><\/p>\n

There are many savings vehicles out there that are designed for this purpose, you just have to know how to use them. Here we go over different tools available for those who need to save on their own:<\/span><\/p>\n

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Picking the right tools to help pave your financial future<\/span><\/strong><\/p>\n

myRA<\/em> <\/strong><\/span><\/p>\n

If you want to get your feet wet, but want minimal risk and tax-free growth you can go for a\u00a0myRA\u00a0or My Retirement Account. This is a government funded retirement investment account and it is \u201cinvested in a single United States Treasury retirement savings bond, which will not lose money and is backed by the United States Treasury.\u201d While your account can only hold funds for up to 30 years and at no more than $15,000, whichever comes first, it will earn interest comparable to the rates of investments in the Government Securities Fund.<\/p>\n

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This alternative provides participants access to a retirement vehicle that is incredibly simple to use, safe and secure to transfer and monitor funds, and most of all, affordable and easy to make a part of your financial life.\u00a0<\/span><\/p>\n

Individual Retirement Accounts<\/span><\/em><\/strong><\/p>\n

As long as you have received taxable earnings within a given year, you are qualified to open an Individual Retirement Account, or IRA.\u00a0You can choose from a traditional or Roth IRA which help you accumulate towards the same goal, however the major difference being when you pay taxes.<\/span><\/p>\n

Funds from a traditional IRA are taxed the year you withdraw funds, so most likely during retirement, while funds deposited into a Roth account are taxed before they are deposited into the account. Also, there are age and income restrictions depending on the account you choose. At 70 1\/2 years and older, you cannot make any more contributions to your traditional IRA, and depending on your filing status and income, you may not be allowed to make any more contributions to your Roth account. While both achieve the goal of saving for your retirement, a Roth IRA is the most beneficial of the two because of the tax-free withdrawals participants are privy to at retirement.<\/span><\/p>\n

Solo 401k<\/em><\/strong><\/span><\/p>\n

If you’re an entrepreneur, and even if you are using one or both of the options already mentioned, the solo 401(k) may be an appropriate addition to your investment plan. It follows the same rules as a traditional 401(k) except it\u2019s limited to use only by a sole proprietor\u00a0and their spouse.\u00a0<\/p>\n

The business owner\u00a0acts as an employer and employee, so they have the advantage of contributing in both elective deferrals and employer non-elective contributions. However, for 2015 & 2016, the overall contributions cannot exceed $53,000. This does not include catch-up accounts for individuals 50 years of age and older.<\/span><\/p>\n

Defined Benefits Plan<\/span><\/em><\/strong><\/p>\n

Pensions may be a thing of the past for most employers, but as an entrepreneur or business owner, you may still be able to set-up one of these plans. With this type of retirement savings plan, you would receive a fixed monthly amount throughout retirement based on how much you’ve paid into the plan. The reason why a lot of large companies don’t sponsor this type of plan anymore is because it’s very expensive for the employer, since they technically make all of the contributions. When you are the \u201cemployer\u201d and \u201cemployee\u201d however, you can\u00a0<\/span>deduct\u00a0the cost<\/span>\u00a0<\/span>of fully funding a fixed pension for yourself in the last few years before a given retirement age, even if you plan on continuing to work.\u00a0<\/span><\/span><\/p>\n

While you’ll have to make steady contributions each year (this is a requirement under law), this option can be a great savings tool, especially if you’re over 50. Take for instance this example from Forbes: a professor in his mid-60s shelters his $100,000 consulting income for the last decade in a DB plan and when it’s fully funded, he shuts the plan down, rolls that money into an IRA, watching it\u00a0<\/span>continuously\u00a0grow tax deferred until he’s required to take minimum distributions at 70 1\/2. Whether\u00a0you have another stream of income, such as a consulting gig, or own your own small business, a defined benefit plan could be the way to go.\u00a0Make sure you speak with a tax advisor and ERISA attorney before setting one of these up \u2013 because as good as they can be, there are a lot of rules and requirements to follow.<\/span><\/p>\n

Brokerage accounts<\/span><\/em><\/strong><\/p>\n

You can also take a more independent approach to long-term savings and invest your money in products such as stocks, bonds, mutual funds, target-date funds or money market funds.\u00a0<\/span><\/p>\n

Whether you work with a financial advisor, a\u00a0robo-advisor,\u00a0or do it all on your own, you have the ability to invest in multiple portfolios, diversify, and thus gain multiple streams of income for the future.<\/span><\/p>\n

However, it’s important to understand that investing in a brokerage account doesn’t always guarantee stable or even significant revenue, and it doesn’t provide any tax advantages at any time for your investments.<\/span><\/p>\n

There are many components that go into opening an account such as, deciding whether you will have a\u00a0cash account or a margin loan account,\u00a0understanding all of the risks come with each account, and knowing what the best investment strategy is for you. It’s incredibly important to gain as much knowledge, so you can be able to minimize any risks when you invest.<\/span><\/p>\n

Saving Apps<\/span><\/strong><\/em><\/p>\n

Today, apps reign supreme and the ability to save is only a swipe away. There are many savings apps that allow you invest, withdraw, and monitor your investments all from your phone, using only your spare change in some cases.\u00a0\u201cInvesting is an inherently fast-paced, on-the-go industry, rendering it an especially good fit for mobile technology,\u201d says Raul Moreno, co-founder and CEO of\u00a0iBillionaire.\u00a0<\/span><\/span><\/p>\n

There are a ton of new apps sprouting up, such as Acorns,\u00a0Digit, and Betterment\u00a0among many others. With lower feeds and the ability to track investments while waiting in the check-out line can make many aspects of long-term saving easier, there are also some drawbacks. Be aware\u00a0that the availability to check your accounts all the time\u00a0and monitor every dip in the market may encourage you to make trades or withdrawals on impulse. As always, when saving for retirement, keep your long-term goals in mind and try not to get too caught up in the day-to-day (or minute-by-minute) changes in the financial markets.\u00a0<\/span><\/p>\n

Dividend-Paying Stocks<\/span><\/strong><\/em><\/p>\n

What is a cash dividend?\u00a0 A cash dividend is a distribution of a portion of a company\u2019s earnings to its shareholders. Not all companies pay dividends. Generally, dividend paying companies are profitable financially stable companies that pay out a portion of their earnings to shareholders as a way to reward shareholders for investing in the company. The dividend payout may increase over the years if the company continues to grow and increases its profitability.\u00a0<\/span><\/p>\n

A company that has a history of paying consistent dividends may be an attractive investment opportunity for an investor that is looking for a steady stream of income from an investment. Be sure that you’re choosing a “safe” dividend though by looking for a company that can cover their annual dividend payments with cash flow from profitably operating the business as compared to a company that is borrowing money to meet its dividend obligation.\u00a0<\/span><\/p>\n

Basic research on the company you’re thinking to invest in can help you avoid this. Look for signs such as:<\/span><\/p>\n