When I was a contract worker or when I used to work in retail I had no access to a 401k. Millions of Americans have no access to one of the best retirement options available. That said, if you are an hourly worker then you should have access to an IRA still. If you are maxing out $6,500 for the year 2023 / $6,000 in 2022 then what are your other options? Let’s find out below.
These ideas are based on my personal experience and opinion and should not be considered professional financial investment advice. Furthermore, the ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
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What do I do if my employer doesn’t offer a 401k?
If you are employed by a company that does not offer a 401k, it can be difficult to figure out what your next steps should be. Retirement planning is important for everyone, regardless of their employment status. Thankfully, there are several options available for those who don’t have access to an employer-sponsored retirement plan.
One option is to open an individual retirement account (IRA). IRAs allow you to save money on your own and provide tax advantages as well. With an IRA, you can choose from different types of investments such as stocks, bonds, or mutual funds, and decide how much you want to contribute each year. Additionally, some employers may even offer a matching program if you open an IRA with them—so it pays to do your research!
Another option is investing in a Roth IRA. A Roth IRA is a post-tax account that has certain advantages when you go to take your money out. All of the principal can always be withdrawn tax and penalty-free at any time. After 59 1/2 any money made on your investments can also be removed tax-free.
If you want to know more about the differences between Traditional and Roth IRAs read my article here.
Can companies not offer 401k?
401k retirement plans are offered by a majority of employers as they provide a safe, secure way to save for retirement. Although it may seem like an employer must provide a 401k plan, that is not always the case.
Companies do have the right to choose whether or not they want to offer employees a 401k. Employers can opt out of providing any retirement plan and instead use their resources in other areas such as employee benefits, salaries, or research and development.
However, employers should consider offering some form of a retirement savings plan. Without one, employees may be left without the security of saving for their future which could potentially impact recruitment efforts if other employers do offer such plans. Additionally, there are various tax credits available for businesses that choose to start up and maintain a qualified retirement plan.
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Are companies legally required to offer 401k?
As the cost of living continues to increase, it becomes increasingly important for individuals to invest in their future. Unfortunately, not all employers provide access to retirement savings plans such as a 401(k). While there is no legal requirement for employers to offer a 401k, most U.S. citizens are eligible for other types of retirement accounts that can help them save for the future and reduce their tax liabilities.
The Retirement Equity Act of 1984 mandated that employers with more than 25 employees must provide pension plans, but this law does not specifically require companies to offer a 401(k) plan.
However, if an employer offers a plan that meets certain criteria under the Employee Retirement Income Security Act (ERISA), then they may be subject to legal consequences if they do not comply with applicable laws and regulations concerning employee benefit plans. 401k Plan Contributions Employers may require employees to contribute a percentage of their wages toward a 401k plan.
Some employers match the contributions of their employees, while others do not. Each employer determines its own 401k plan rules and regulations. If an employee is not making the required contributions to a 401k plan, the employer can make up the difference.
To learn more about 401k programs and answer many of your potential questions click here.
Can I open a 401k on my own?
Yes, you can open a 401k on your own even if your employer does not offer one, but ONLY if you own a business. So if you only have a job with an employer and they don’t offer a 401k program then an IRA is your only option.
If you are self-employed or have a small business/side hustle in addition to your day job, then yes you can open up a small business 401k. In fact, there are numerous financial institutions that will help you in setting up a 401k plan of your own. It’s an excellent way to save money for retirement, as the contributions are tax-deductible and the money accumulates interest over time.
How much does it cost to open a 401k?
If your employer has the option for you to contribute a 401k then you can divert a percentage of each paycheck toward it. I haven’t seen any brokerage let you do less than a percent or fractional percentages so it would cost at least 1% of one paycheck. Though it would be advantageous for you to put in at least enough to take advantage of any company 401k match you are offered. Typically between 5% to 6% from what I have seen personally.
For small business 401k, you can open up the account without any money down, any fees, and any trade fees with Charles Schwab.
How much does it cost to have your own 401k?
To have a 401k there are no fees. However, depending on what you invest in there are some fees. If you invest in index funds they have the most diversification with the least amount of fees. Therefore, you could invest in the biggest publicly traded companies in the US or Internationally for less than 0.05% fees with any of the major brokerages like Vanguard / Fidelity / Charles Schwab.
Is a 401k worth it anymore?
Back In 1981, the IRS issued new rules that allowed employees to fund their 401k through payroll deductions, which created the 401k’s popularity. Within two years, nearly half of all big companies were offering 401k’s or were considering it, according to the Employee Benefits Research Institute.
This was a great idea, except that most companies saw this as an opportunity to remove pension plans. By removing a pension plan companies were able to offload the responsibility for retirement and saving for retirement onto the worker. To be fair most workers are incapable of fully understanding what was given to them.
While that is better for those that like more control and have the knowledge to use it, overall I don’t think the 401k was a good idea given what happened to pensions. Although, not being tied to a company for 20 years to fully fund retirement in my mind is a good thing. So it is a mixed bag like any major decision in life.
Regardless, this is the system we have had since 1978 and even more so since 1981. So this is the system most people have (or one like it) to invest their own money for retirement because pensions are pretty much a thing of the past unless you are in government and some areas of finance. This leaves you with social security, which will be cut by 25% in the 2030s per the IRS, and any retirement accounts or other assets you have managed to accumulate.
If you want to know more about what an asset is and the different types of assets you need to start to collect click here to read my article on the 7 sources of income you can earn.
How much does a 401k cost per month?
It doesn’t cost you anything to have a 401k account. But depending on your investments you could have high or low fees. Index funds have the lowest fees while I have seen some mutual funds have fees in the 3% or less range. That is why I recommend index funds. You get diversification to many of the top companies that you may buy products from on a regular basis and they have the lowest fees because they are managed electronically.
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Is it better to invest yourself or 401k?
It depends on whether or not you can outpace the gains from investing in the stock market. The people on Bigger Pockets will judge whether or not they should buy a rental property based on whether or not it can make 10% or more in cash flow as the S&P 500 has returned 9.4% on average year over year in any 20-year-old period.
If you want to start reading books on real estate please see my list here. I will tell you that it takes a lot of money to invest in real estate and you can invest in your 401k for as little as 1% of each paycheck which makes getting invested in a 401k one of the easiest ways to invest in your retirement.
I would suggest doing both frankly. There are a lot of ways to make money and invest in yourself. Read books, watch videos, take courses and go to classes and seminars. So I would do as much as you can for free to see if anything seems like a good fit for you and then look at investing in yourself.
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My employer doesn’t offer a 401k
If your employer doesn’t offer a 401k or you are a contract or hourly wage earner you probably don’t have access to one either. Your options are to then invest in a Traditional (pre-tax) or Roth (post-tax) IRA. You can contribute up to $6,500 in 2023 into an IRA and you can easily open up one of these accounts at Vanguard, Fidelity, Charles Schwab, or other brokerage accounts.
If you invest in an IRA, I would suggest investing in an index fund as it has low fees and good returns over long periods of time.
About Dwight Scull
I have been married to my wonderful wife, Rebecca, who puts up with me since 1999. I am a proud father to my Gen Z, son, and daughter-in-law. Grandfather to my favorite granddaughter who was born in 2021.
I lost my mom, father-in-law, and 12 others in 2013 and was DEEPLY in debt. I started reading and watching all the financial info I could find.
I chipped away at my debt and went from a negative $105k net worth having one home paid off, no credit card debt, and saving/investing 45%+ of my gross salary.
I used these daily habits to lose 100 pounds and keep it off.
I believe that you can overcome any challenge you face if you just take small daily actions and be consistent with them. It is how you will be financially successful.
Join my free Facebook group to get a ton of free resources to help you get out of debt, learn how to invest your money and work toward having the option of retiring early.