Managing Your Money

No 401(k)? No problem.


When it comes to saving for retirement, Americans are more frequently left without the support of an employer-sponsored plan. According to a 2015 survey by TIAA-CREF, 53% of respondents with an IRA reported not having a retirement plan through work, up 16% from 2014. Some companies – like startups – don’t typically don’t offer many benefits, including a retirement plan, because they need to put those resources towards growing the business. If you’re working for a startup that doesn’t have a retirement plan, you should take a few steps to prepare for retirement yourself.

Consider opening an IRA

One of the advantages of saving through a work retirement plan instead of just investing through a regular brokerage account is that retirement plans typically offer tax advantages. For example, a 401(k) gives you a tax deduction for your contributions and delays taxes on your investment gains while your money is in the account.

Even if your company does not offer any type of retirement plan, you still have options. By opening an Individual Retirement Account (IRA), you can get these same tax advantages for your savings, depending on your tax filing status. An IRA is a retirement account you open yourself, outside of work. In 2015, you can invest up to $5,500 a year into an IRA if you are younger than 50 and up to $6,500 a year if you are 50 or older.

There are two types of IRAs: the Traditional IRA and the Roth IRA. Both accounts delay taxes on your investment gains. Although your contributions to a Traditional IRA may be tax deductible, those eligible for a Roth IRA will make contributions with after tax dollars. When you make a withdrawal from your Roth IRA when you are 59 ½, your entire withdrawal is tax-free so you aren’t taxed on your investment gains.

Start saving early and often

The sooner you can start saving for retirement, the better. Saving early will give your money more time to grow which means you’ll have more saved up when you reach retirement, and it will require a less significant contribution from you in the long run.

It’s helpful to have the mindset of paying yourself first. When you get a paycheck, your first payment should be your monthly contribution into your retirement account. If you wait to pay everything else off and then use whatever’s left for retirement, there might not be enough left to meet your goals.

It’s even more important to stay on track with your savings because you’re doing everything on your own. With work sponsored plans, the employer usually makes some contribution. For example, in a 401(k) an employer might match 50 cents of every dollar an employee adds to their account, up to a certain limit. Since you won’t be receiving any extra money from your employer it’s important to save more to make up the difference.

Make ‘someday’ today

Even if your employer has plans to launch a retirement plan in the future, don’t hold off on starting to save for retirement. Not only would you miss out on valuable compounding, but you have no assurance a plan will actually launch. What if your company gets acquired or doesn’t meet revenue projections? Don’t let your employer control when you start saving for retirement.

In the day-to-day chaos of working at a growing company, make sure not to delay your long-term financial goals. Saving for retirement is a marathon, not a sprint. Start early and stay the course – with or without a 401(k).


Financial Planning Association of Massachusetts member Kristin McFarland is the Director of Strategic Partnerships with The Darrow Company in Boston. The Darrow Company is a fee-only asset management and financial advisory firm focused on building and preserving the wealth for their diverse client base.

Kristin McFarland is an investment adviser representative of The Darrow Company, Inc., an SEC registered investment adviser located in Massachusetts. The material contained in this article is for general information only and should not be construed as the rendering of personalized investment, legal, accounting, or tax advice.

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