When we talk about retirement planning, we’re often operating under the assumption that our readers have a 401(k) or at least have access to one. But we do know that about 38 million private sector employees in the United States are not offered this type of retirement savings opportunity by their employers*. What are these individuals to do?
Ask your employer. Many small business owners are unaware that tax credits do exist to help them provide retirement savings opportunities to employees. At the very least, signaling interest will give your boss something to consider in the future, when re-evaluating employee benefits packages.
Another option is to ask your employer if they would be willing to switch your employment status to that of an independent contractor. You would receive a 1099 form rather than a W-2, and you could establish your own SEP IRA, individual 401(k), or even a pension plan. There are certain requirements involved with this tax status, so this option is not available to everyone. Talk to a financial professional about how this decision could affect your tax status.
Utilize a health savings account. While many smaller businesses might not offer a 401(k) plan yet, plenty do provide their workers with a health insurance plan. If you’re enrolled in a healthcare plan with a high deductible (likely in this scenario), then you’re eligible to fund a health savings account (HSA).
With an HSA, you can save money for uncovered healthcare expenses (like your deductible, co-pays, and more). This can be helpful now, but the important thing to remember is that unused funds are rolled over from one year to the next, indefinitely. So by the time you retire, any unused funds in your HSA can be used for qualified healthcare expenses in retirement.
The money you devote to your HSA can be taken straight from your paycheck, before taxes, so you’ll earn a bit of a tax break too. In a way, you could view your HSA as a backdoor way to save for retirement, in absence of any other retirement planning options.
Open your own retirement account. Even if your workplace does not provide a retirement savings option, you can still open and fund an Individual Retirement Account (IRA). You can choose between two tax structures for this account: A Traditional, which allows you to make pre-tax contributions now, but pay taxes on withdrawals in retirement, or a Roth account, which allows you to make after-tax contributions now but enjoy untaxed withdrawals after you retire.
Schedule an appointment with us to discuss these options, and we can help you decide if one (or more) will work for your situation.