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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: Employer has no 401K Date: 4/5/2010 8:59 PM
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My employer doesn't offer a 401K.

It is nice to be able to put $16,500 in a 401K, but other than contributing the maximum of $5000 to an IRA, do I have any other options?
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Author: TMFBigFrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66921 of 75339
Subject: Re: Employer has no 401K Date: 4/5/2010 9:37 PM
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other than contributing the maximum of $5000 to an IRA, do I have any other options?

There's no rule that forces you to invest only in qualified retirement plans for your retirement. You can invest in an ordinary brokerage account and mentally earmark it for your retirement.

The main disadvantages are that ordinary accounts are not tax advantaged and don't have the sort of "creditor protection" that many qualified retirement accounts do.

The main advantages are that you can pull your money out of an ordinary brokerage account at any time, without penalty, and that there's no limit to the amount you contribute to an ordinary brokerage account.

Because of the tax profile, "portfolio churn" is a bigger concern in ordinary brokerage accounts than in retirement accounts. Additionally, you may find it more efficient to "rebalance" via where you direct new contributions instead of via adjusting existing balances. That said, if your investments do produce losses, those are advantaged in your ordinary account when compared to your qualified retirement account.

-Chuck
Inside Value Home Fool

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66923 of 75339
Subject: Re: Employer has no 401K Date: 4/5/2010 9:55 PM
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Guess I was just looking to see what qualified plans are potential options - such a wide maximum discrepancy between the 16500 for 401K and only 5000 for IRA

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66924 of 75339
Subject: Re: Employer has no 401K Date: 4/5/2010 10:13 PM
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You can avoid the income tax problem in a taxable account by investing in the buy and hold style. By buying stocks (or other investments like real estate) you can hold long term, you pay income taxes only when you sell and then at capital gains rates.

Doing this successfully is not so easy, but it has many advantages even over a 401K plan. The 401K profits are eventually taxed at ordinary income tax rates. The LTBH account is taxed at capital gains rates. You also have the money easily available when needed as to fund downpayment on a house or the education of your children.

And there are advantages to be derived from various charitable giving strategies (and charitable trusts). Donations let you write off the full appreciated value on your taxes. That can be used to protect other income from income taxes.

Also your heirs inherit the property on a stepped up basis. Ie their cost basis is its fair market value on the date of your death. Hence, they can sell it free of most income taxes (unlike the 401K which is fully taxable to heirs when they take distributions from the account).

As an alternative, you can consider a variable annuity, but Fools usually don't recommend them as they tend to be costly. If you go this route, be such to check out the low cost ones from Fidelity, Vanguard, TRowe Price, and others. Avoid the expensive ones offered by insurance companies and by brokers. But also check out the AM BEst rating of the issuing company. You want your money someplace secure. For more on Annuities, see the Annuities discussion board.

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Author: TMFBigFrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66925 of 75339
Subject: Re: Employer has no 401K Date: 4/5/2010 10:21 PM
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Aside from IRAs, most qualified retirement plans are employer-maintained. Does your employer have any retirement program at all?
Do you have any otuside source of earned income that you can use to roll your own qualified plan?

One option is an annuity, as those typically can compound tax deferred until you're ready to tap them. However, annuities tend to be expensive, and the money you spend in fees and lost return potential may wind up costing you more than the tax benefits you get from 'hiding' your money inside the annuity.

-Chuck
Inside Value Home Fool

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66926 of 75339
Subject: Re: Employer has no 401K Date: 4/5/2010 11:44 PM
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"Do you have any otuside source of earned income that you can use to roll your own qualified plan?"

I'd assume even if I did have paltry outside income form a second job or something, I'd only be allowed to deduct the amount of income produced by said job? Take in 1000 in income, can't contribute 10K to a SEP IRA?

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66927 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 12:01 AM
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how big's your employer? maybe you can get together with some other folks and lobby for a 401(k)?

( i don't think they're all THAT expensive ..and a bennie to nearly every one )

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66928 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 7:54 AM
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Is there any way you can structure you employment so that you cease being an employee and become an independent contractor? If so, they you can use a SEP IRA and contribute up to 20% of your earned income, with a cap at $49K. You also could set up an individual 401k. Just an idea, because depending on the business, some employers might prefer for you to be an independent contractor. Of course, you likekly would lose health coverage if you became an independent contractor, and that could offset any benefit of having access to tax deferred retirement accounts.

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66929 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 8:18 AM
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Company of 3 or 4 employees, and we do get health care.

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66930 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 2:23 PM
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Company of 3 or 4 employees, and we do get health care.



pretty small />:


YOU might research what the cost would be and present to the Powers.



=

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Author: madbrain Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66931 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 3:33 PM
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Unfortunately, the lack of benefits is one of the big downsides of working for a small company vs a large one.

Lack of a good retirement plan is one of them.

But even your healthcare premiums might go way up if any of the 3-4 employees get seriously sick, and your copays are probably pretty high too. But it is still better than being a contractor and possibly not being to get any health insurance at all, though the situation will get much better in 2014 when healthcare reform is in full force, and there will be less incentive to work for a large company then. But I digress now.

I hope you make it up somewhere, by having an interest in the growth of the small company, or a higher salary to make up for the lack of benefits. If not, you might consider selling your soul and working for a larger company with good benefits ;).

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66932 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 4:46 PM
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If the employer would like to contribute to a defined contribution plan for the 3 to 4 employees, you might suggest a SIMPLE IRA, particularly the IRS model 5304 SIMPLE, which you can see here...

http://www.irs.gov/pub/irs-pdf/f5304sim.pdf

Or a model 5305 SIMPLE if you want to set it up through a single custodian like Vanguard

http://www.irs.gov/pub/irs-pdf/f5305sim.pdf

With Vanguard, I believe, they charge each account $25/yr the employee pays, but there are no other costs to the employer, either set up or ongoing....but you'd need to double check this with Vanguard.

With a SIMPLE, the employer must match each employee's salary deferral amount up to a max of 3% of salary....and in thin years, the employer can cut this to a 1% dollar for dollar match, as long as this cut doesn't happen in more than 2 years out of any 5. The other potential trade off to the employer is that all employee's who earned more than $5,500 last year must be included in the plan, whether the employer wants to include them or not. And although the employees salary deferral must go into their SIMPLE account within 30 days, the employer's match can be delatyed up until the employer's tax filing deadline (plus extensions)

The major benefit of this kind of plan to small employers is that the employer makes NO committment to continue the plan in future years....it goes year to year only. IOW, offering the plan in one year has nothing to do with whether the plan will be offered the next year.

Of course, this all hinges on whether the employer wishes to offer this as an employee benefit

BruceM

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66933 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 7:20 PM
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ah, the large vs small company debacle, yes, hopefully more upside at the small company, but I fully understand the economies of scale where the large company is able to provide far better benefits. For now, it seems IRA and the a taxable account are my only choices.

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Author: PKnudsen Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66934 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 8:09 PM
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do I have any other options?

Yes. Open a taxable account. If you avoid heavy trading you won't have to pay much.

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66935 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 8:56 PM
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"Of course, this all hinges on whether the employer wishes to offer this as an employee benefit"

If I am to pitch this to the employer, what is the incentive for them?

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66936 of 75339
Subject: Re: Employer has no 401K Date: 4/6/2010 9:25 PM
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If I am to pitch this to the employer, what is the incentive for them?



Four at least slightly happier employees

*including the decision maker*


otoh ..they're not free and there are alternatives ...so might be a better way.



=
..... well beyond my ken no />:

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66937 of 75339
Subject: Re: Employer has no 401K Date: 4/7/2010 12:03 AM
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...If I am to pitch this to the employer, what is the incentive for them? ....

Depending on how the company is structured the owner may be able to participate in the 401K,

A quick Google search found Sharebuilder touting their low cost 401k plan. I have not used them but if you are not familiar with share builder, they have made a bit of a nitch for themselves serving small investors. There plans may not require a employer match and could be easier to get management to agree to.

Greg

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Author: airahcaz Two stars, 250 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66938 of 75339
Subject: Re: Employer has no 401K Date: 4/7/2010 9:37 AM
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Thanks found this article

http://www.etftrends.com/2010/03/etfs-slowly-surely-replacin...

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66939 of 75339
Subject: Re: Employer has no 401K Date: 4/7/2010 4:39 PM
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Thanks found this article

http://www.etftrends.com/2010/03/etfs-slowly-surely-replacin......



This is really a pitch for using ETF's rather than MFs in a retirement plan. Great....I have no problem with this concept, as I also use ETFs....but that's not your question.

To get your employer to 'buy-in' to a retirement plan, your employer would want to use the retirement plan to do one (or more) of the 3 'Rs' for the employees:

Recruit
Reward
Retain

In addition, it allows him/her to contribute to their retirement

Think of an employer sponsored retirement plan as part of the employer's benefits, just like health insurance.

As to the SIMPLE IRA....its strong suit is that it is...well...simple. Employer only needs to complete the 5304 or 5304 forms, make sure employee accounts have been set up and then set up payroll to direct participating employee contributions to their accounts each month. No annual filings, just notification to eligible employees by 11/1 prior to the next calendar year so employees can have time to elect to participate or not.

The drawback is that the employer MUST contribute if the employee contributes.

He/she may also set up a straight 401(k), for which employer matching is not required, and make funding only through employee salary deferral. But a 401(k) plan must be administered to, tested annually and file their annual returns with the IRS....so there will be overhead costs.

A SEP is by far the easiest. Here the employer can elect to make a flat % of salary contribution to all elibilbe employees that can be delayed until the employer files their tax returns (including extensions) and can be made or not made. It is funded only by employer contributions, thus can be limited to the 'good years'.

BruceM

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Author: JestYourFool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 66954 of 75339
Subject: Re: Employer has no 401K Date: 4/15/2010 3:23 PM
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With a small company, it may not be possible for them to start a 401(k). However, more and more people are looking for this kind of benefit since many think social security will be gone by the time they retire. Unfortunately, with the current job market, employers do not have to entice new employees with benefits - just a job!

When you mention IRA, have you thought of a Roth IRA? Your contributions are taxes, but when you withdrawal the money, it's all tax free (including the profits). In addition, you can withdrawal the investment (not the profits) at anytime without paying a penalty because you already paid taxes on the money.

I do use Sharebuilder. For a $12 monthly fee, I can invest in 12 companies. Any additional purchases are $1 each. In addition, I only sign up for the "Advantage" program when I know I'm going to invest money. The Basic plan allows you to buy stocks for $4 a trade - no monthly fee. It has been a great way for me to build a portfolio. (I can invest as little as $25 for each stock. However, I recommend at least $100 if you pay the $1 fee - that is a 1% expense.)

Good luck. I'm assuming you love your job or no other similar positions are available. Hopefully, the company will grow and offer the 401(k) soon!

Jest

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