Most jobs offer some type of benefit above and beyond a steady paycheck. One of the most common types of benefits is the 401(k)—the current retirement plan of choice that lets you put part of your pre-tax dollars into a savings account. Usually a financial planner will then invest this money into one of several portfolios.
It’s a good benefit, and the earlier you start the better it is. In the world of good money moves, having a retirement fund is one of the best you can make, and it’s a big step in making sure you’ll eventually be able to retire.
Some companies don’t offer a 401(k), though. They may be too small for a 401(k) to be worthwhile, or they might be a startup that is too new to have one. They might also be a company that focuses on hiring entry-level and part-time employees and don’t offer a 401(k) in order to keep costs down.
If you’re working for a company that doesn’t offer a 401(k), don’t worry. You can still save for retirement with one of the following alternatives.
An Individual Retirement Account (IRA) is, as the name suggests, designed specifically to help people save for retirement. You can set it up with almost any brokerage, as well as many financial institutions. You can contribute a set amount to an IRA each year, and you can invest that amount however you see fit.
If you select a traditional IRA, you put in the money tax-free and pay taxes when you take the money out in retirement. Contributions to a Roth IRA, on the other hand, are not deductible, you are not taxed on the money (or its earnings) when you take it out for retirement. This has several advantages over the traditional IRA, and if you’re starting an IRA early many financial experts suggest you choose the Roth.
If you don’t have a 401(k) because you’re self-employed, you might want to look into a SEP IRA. This plan is very similar to the traditional IRA, but it has a much higher contribution limit—around 25% of your income.
Regardless of which option you choose, you’ll also want to make sure you’re investing the money you save. You may want to invest in an index fund, or use a type of software called a robo-advisor to help you manage your investments.
Take Advantage of Stock Options
Companies that don’t offer a 401(k) may offer other benefits, such as buying stock options. While this won’t provide all the benefits of a 401(k), it can still be a good investment, especially if the company is poised to grow rapidly in the first few years. However, you should know that this strategy is inherently riskier than investing in a retirement account, since there is no guarantee the company will be successful.
Consider Switching Jobs
At the risk of being snarky, if your company doesn’t offer its employees a 401(k) plan, you may want to start looking for a job that does. Working for a company that doesn’t have a 401(k) is fine if you’re looking to gain experience or if you believe in the company. However, if the company hasn’t improved its retirement benefits package after a year or three, it may be time to see what other opportunities are out there.
Prepare for Retirement by Joining a Credit Union
No matter where you are in your journey toward retirement, a credit union can help. Let our Member Advisors help you create an IRA, invest in a CD or start a Personal Money Market Account. You can also take our Good Money Moves quiz and let our Money Navigators help you figure out the best steps to ensure your financial success.