Dear Liz: I’m working for a new company and they don’t have a 401(k) plan. Until they put one in place, can I put money into to my prior company’s 401k plan?
Answer: Sorry, but that’s not an option.
You have other alternatives, however. You can put up to $4,000 this year ($5,000 if you’re 50 or over) into a traditional individual retirement account or a Roth IRA. You also can save for retirement in a taxable account.
Your contributions to a traditional IRA would be deductible if you’re not covered by another retirement program at work (such as a defined-benefit pension).
Even if you are covered by such a plan, some or all of your contribution could be deductible if your income is below certain limits (adjusted gross income of $60,000 or less for singles, $80,000 or less for married couples filing jointly).
If your income is very low (generally $30,000 and under) you also might qualify for a tax credit.
Your contributions to a Roth IRA wouldn’t be deductible, but any withdrawals in retirement would be completely tax-free. That’s an enormous advantage.
If you’re young, expect to be in a higher tax bracket in retirement or if you can’t deduct your IRA contributions, the Roth is almost certainly the way to go.
If you can save even more, then a taxable account might be the way to go. You won’t get a deduction for your contributions, but you can qualify for low capital gains tax rates for any investments you hold for more than a year.
Choosing low-cost index funds or exchange-traded funds (ETFs) will help you keep fees and taxes in check.
Whatever you do, don’t allow your new company’s foot-dragging to disrupt your retirement savings plans. You need to be putting money aside–whether your employer is helping or not.