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Help a Reader: Employer Doesn’t Offer 401(k)

I’ve been fortunate in that every employer I’ve ever worked for has offered a 401(k) defined contribution plan. I know that many people are not so lucky and reader Jennifer is one of them. Many smaller businesses can’t afford to set up a plan or simply don’t want to. Whatever the reason, Jennifer doesn’t have the option available to her. This week’s Help a Reader [3] will focus on the options available for someone without a 401(k) at work.

Here’s an excerpt from her email:

My employer does not offer a 401(k) plan and I know I need to start one soon, I’m in my early 20s. I know that I can open up an independent 401(k) but I’m not sure where to start or if a 401(k) is even the best option. Help!


I’m not an expert on the 401(k) but if you’re an employee, as in you get a W-2 from your employer, then you can’t open a 401(k) yourself. Independent 401(k)s are available to people who are self employed and run their own business or some other small business with a family member.

What Jennifer is thinking of is probably a Traditional IRA. When your employer does not offer a defined contribution plan, then your contributions to a Traditional IRA are tax deductible. The maximum you’d be able to contribute to a Traditional IRA, given your age, is $5,500 each year. It’s not as good as a 401(k), where you can contribute up to $17,500, but it’s better than $0.

The downside to this is that the Traditional and Roth IRAs share the same contribution limits. Your total contribution to Traditional and Roth IRAs cannot exceed $5,500. So if you contribute $2000 to a Traditional IRA then you can only contribute $3500 to your Roth IRA.

To the best of my knowledge, and I’m not an expert so someone chime in if you know better, this is your best option.

(Photo Credit: urban_data [4])