What To Do If Your Employer Doesn’t Offer a 401k Plan

“82 percent of millennial workers(age 21 to 34) are making contributions to the 401k plan” [1]

Despite the popular belief, the new generation is very much interested and are active participants of the 401k plan. The 401k retirement plan is still one of the safest ways to save for the old age. It’s a powerful financial tool that has served baby boomers over the past several decades.   

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401k Plan

Yet, some employers do not offer a retirement plan and prefer to pass the responsibility to the employees themselves. There could be many reasons why they choose to do so. Maybe the employer has started a new business and thinking about his/her employees future is not in his/her circle of concern.

So, every employee should think about alternative ways to save money from their paycheck. 401k is not an end all be all solution to your future financial problems. Living your life from paycheque to paycheque may seem adventurous for a while but what if the unexpected happens and you are left with very little or no savings at the time of retirement? 

What is a 401k plan?

By definition, the 401k plan is a defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code(a federal statutory tax law in the United States). The 401k was started in the year 1970 when a group of well-to-do employees of Kodak presented this plan in front of the government officials.

Thereby, a specified amount of money from your paycheck will get added to the 401k plan every year. This plan is moderated by the employer. So, there is nothing much to do on your part. Another benefit of the 401k plan is that the money you contribute is tax deductible. Which means, you won’t get taxed on that amount.  

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The best alternative to 401k

Don’t worry if your employer does not provide a 401k plan. There are other smarter investment approaches you can take by being a little bit more diligent.

Traditional IRA

Traditional IRA is an individual retirement arrangement managed by a custodian institution such as a bank or brokerage firm. It was founded during the Employee Retirement Income Security Act of 1974. IRA has a strict eligibility criterion based on the individual’s income, age, and occupation. But, like 401k, you are taxed on the contribution amount at the time of the retirement and not during the contribution period.

Summary

There are plenty of other ways to self-direct your investments in areas like real estate, stock market, mutual funds, precious metals, etc. A 401k is a fixed and rigid system of investment. Once you start contributing, you won’t be able to withdraw the money without paying a hefty fine. With investment options like real estate, you get the flexibility to buy and sell your asset at will.   

Finally, if you still want the safety and security features of a 401k plan, you can change your job and work for a company that does provide your desired retirement plan. Likewise, changing careers and jobs has never been easier. With the advent of new technologies, it is now easier to learn and practice new skills.


[1] “401(k) – American Benefits Council.” Accessed May 20, 2019. https://www.americanbenefitscouncil.org/pub/e613e1b6-f57b-1368-c1fb-966598903769.

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