Losing 401k

[Beccagold]

Hi Everyone! I'm considering accepting a position with a new company that doesn't currently have a 401k in place. They are saying they will have one this summer, but you never know. At my current position I am maxing out my 401k, so I do not want to drastically cut down on my retirement planning. Also, this year I have already put over $5k in my current 401k.

What are my options? Can I still invest in an IRA this year? Would you save the difference in a taxable account?

TIA!!

[disneysteve]

I don't have a 401k - never have, probably never will. Keep in mind that as much as we hear about 401k plans, only about half of all American workers do have access to one. So lots of people save and invest for retirement without one.

We fully fund Roths for each of us. My wife, who works part-time, does have a 401k and 50% of her income goes into there. As for me, in addition to the Roth, I have money invested in 3 taxable mutual fund accounts as well as some money in a taxable brokerage account. I also opened a SEP-IRA last year with some self-employment income.

[Beccagold]

Thanks DS. While I appreciate that this isn't the end of the world, I have enjoyed the benefit. In the past, I've been able to save over $15k/year before taxes. I want to make sure I contine to maximize my taxes as well as not slip on my savings.

[disneysteve]

I want to make sure I contine to maximize my taxes as well as not slip on my savings.

There are taxable investments that are more tax-efficient than others. Index funds and ETFs are particularly good for that, but as many advisers are fond of saying, don't let the tail wag the dog by considering taxes first and investments second. In other words, don't pick an investment just because it is tax-efficient if it isn't a good choice otherwise.

[MonkeyMama]

On the flip side, having a 401k plan is no guarantee that it will still be tomorrow. Several of my own clients are shutting theirs down, due to the economy, etc.

Anyway, since you are used to the 401k, this could be a huge tax hit for you. This could significantly decrease the amount you can save. Just depends on your tax bracket. It may make little difference in the end if your tax bracket is lower.

If at all possible, I would max out ASAP your current 401k plan, for 2011. If you can put another $10k in there now, do it.

You have until April 15, 2012 to fund and IRA for 2011. Another option is to fund a 2010 IRA - you have until Monday to do so (April 18th is tax deadline this year). May be worth amending your tax return if it has already been filed. An IRA is often easier to fund than a 401k with a lot of contribution restrictions.

Beyond that, I would absolutely fund a taxable account. Tax break or no tax break, I still need to save enough for retirement. With IRA limits at only $5k per year, many many people save for retirement in taxable accounts.

[disneysteve]

Anyway, since you are used to the 401k, this could be a huge tax hit for you. This could significantly decrease the amount you can save. Just depends on your tax bracket. It may make little difference in the end if your tax bracket is lower.

Exactly. I've seen various illustrations showing that the perceived advantage of pre-tax or post-tax savings isn't as big as people tend to think. Avoiding taxes now to pay them in retirement vs. paying them now and having tax-free income in retirement can work out pretty close.

I'm certainly of the opinion that our historically low tax rates can't last. I expect to be paying higher taxes by the time I retire, so I'm happy to pay the taxes today at what I believe are lower rates than will be prevailing years from now.

[Beccagold]

I guess my question is more along the line of what's allowed. So, if I already have over $5k in my 401k for 2011, can I still put $5k in an IRA? If this is ok, then can I also put in another $5k into the IRA for DH even though he will max out his 401k. I definitely still plan to save the difference and will probably add it to a mutual fund I already invest in.

As for adding in the extra $10k to my current 401k, its set up so that I can only make deposits from each pay check up to a certain percentage limit.

[Arash Kamangir]

(traditional) IRA contribs are always allowed, the issue a lot of folks confuse is whether they are deductible or not. There are both income hurdles and employee benefit (like retirement plan) hurdles that you have to pass in order to be able to either fully or partially deduct your IRA contributions. There are also income hurdles on who can, or can't contribute to a Roth IRA. So, to answer your question above, yes, it is "allowed". You and your husband can both max out your 401(k)s, at $16500 a pop assuming you're both under 50, or $22k each if you're both over 50, and your IRAs @ either $5k, for under 50, each or $6k. The age contribution diff is referred to as "catch-up" provision.

And, most plans are like yours in that you can't dump a lump sum in your 401(k), you have to to do it systematically each pay period and per plan provisions.

[Arash Kamangir]

....

(traditional) IRA contribs are always allowed, the issue a lot of folks confuse is whether they are deductible or not. There are both income hurdles and employee benefit (like retirement plan) hurdles that you have to pass in order to be able to either fully or partially deduct your IRA contributions. There are also income hurdles on who can, or can't contribute to a Roth IRA. So, to answer your question above, yes, it is "allowed". You and your husband can both max out your 401(k)s, at $16500 a pop assuming you're both under 50, or $22k each if you're both over 50, and your IRAs @ either $5k, for under 50, each or $6k. The age contribution diff is referred to as "catch-up" provision.

And, most plans are like yours in that you can't dump a lump sum in your 401(k), you have to to do it systematically each pay period and per plan provisions.

[thomsoad]

So long as you are not making over the income limits you can invest fully into a Roth IRA AND a 401K.

Since at that this time your company does not offer the 401K the best you have is the ROTH IRA. As for you accepting this position or not is up to you. But personally, the fact they dont offer a 401K should be factored in accordingly. Just like if this company doesnt offer Medical or Dental either.

I was willing to accept a slight wage decrease for those bennies.... and my present company offers me free trades, free banking, and lots of additonal perks that even a job offering me an exta 20K is actually be a pay decrease in the grand scheme of things.

[jteezie]

You can roll the entire 401k over to a (roth) IRA account and ALSO contribute your regular yearly amount. Best case, you call your roth IRA broker and give them the details for your 401k and they facilitate the funds transfer so it does not look like a withdrawal to the IRS... however most likely you will have to "cash out" then send a check or transfer the money to your broker. You'll likely get audited in a year or two (as happened to me), but its very easy to send backup documentation showing that all you did was transfer from 1 custodian to another custodian.

I prefer to have my money in an IRA over a 401k, you have more flexibility with the money and aren't forced to pay potentially higher expense ratios with your company's 401k options. Consider this situation as an opportunity to improve your retirement returns.

Semi-unrelated note, I would quit my job regularly just to roll over my 401k into IRA accounts, if I didn't like my job, that is.