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No 401(k)? What to do

Dec 20, 2010 | | Comments (2)

Dear Liz: I work for a small company that doesn’t offer the benefits large companies do, such as a 401(k) retirement account. My husband is a federal employee who contributes 10% to his Thrift Savings Plan at work, and we contribute the maximum to our Roth IRAs. Is there another avenue to save for retirement that would be similar to a 401(k) for me or should I just have my husband ramp up his TSP contributions? We’re both 29 and have $35,000 in retirement accounts and $60,000 in other savings programs, mutual funds and money markets. We own our house (14 years left on a 15-year mortgage), have no student loan debt and have one car loan for less than $10,000. I think I’m on track, but I know it’s better to save early and I’m worried that since I don’t have a 401(k) I’m missing out on some peace of mind.

Answer: You two appear to be nicely on track with your finances, but if you want to retire early or otherwise boost your retirement funds you have several options.

The easiest would be to simply have your husband contribute more to his account, but you also could open a joint or individual brokerage account and invest for retirement through that. You wouldn’t get a tax break for your contributions, but your gains could qualify for favorable capital gains rates.

Another option is to start a sideline business and contribute some of your profits to a simplified employee pension, or SEP, IRA. Self-employed workers have several options for retirement savings, including solo 401(k)s and even traditional pension plans, but the SEP is an easy way to start.

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Categories : Q&A, Retirement



I agree a SEP is an easy way to start, but for a sideline business not earning a lot of income, a solo 401k will let the business owner contribute much more. For example, if the sideline business earns $15,000, a SEP will only allow you to contribute $3,000 or so. You will be able to contribute almost the entire $15,000 to a solo 401k (less some allowance for Social Security and Medicare taxes).


True. My experience has been, though, that the newly self-employed often struggle to set aside any cash for retirement, and the additional admin requirements for a 401(k) are just daunting enough to keep them from doing anything. That’s why I recommend SEPs as the easiest first step; once they’ve got a few years under their belt, they can upgrade. If their business is really successful, they can even consider a traditional defined-benefit pension; it’s more costly to administer, but you can really stuff the money away.