Almost 9 in 10 Workers Consider a 401(k) a Must When Getting a New Job. But Here’s a Great Alternative

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Many workers have access to a 401(k). But read on to see what to do if you don’t fall into that category. 

It’s important to save money for retirement consistently during your working years. And if you’re going to do that, you might as well save in an account that offers some type of tax benefit, which isn’t a feature of a regular brokerage account.

A traditional 401(k) plan, however, gives you a tax break on your contributions. And since this year you can contribute up to $22,500 to a 401(k) if you’re under age 50 or up to $30,000 if you’re 50 and older, that gives you the opportunity to shield quite a bit of your income from the IRS.

Now, let’s be real for a second. Many of us cannot afford to part with that much money for retirement savings purposes. And that’s okay. But any amount you contribute to your 401(k) up to these limits will get you out of paying taxes on that sum.

Also, the nice thing about 401(k)s is that many employers match the contributions workers make to some degree. So if your employer offers to match $3,000 a year, by putting that much into your 401(k) out of your paycheck, you get $6,000 going into your account in total.

In a recent Schwab survey, 88% of respondents said that a 401(k) plan is a must-have benefit when seeking out a new job. But not every company offers a 401(k). So if your job doesn’t, rest assured that there’s a great alternative for retirement savings.

Look to an IRA

The great thing about IRAs is that they’re not dependent on an employer. You can open an IRA at any financial institution that offers them and manage that account yourself.

All you need is earned income to qualify for an IRA. And like 401(k)s, traditional IRA contributions go in tax-free.

One thing you should know is that the contribution limits for IRAs are considerably smaller than those of 401(k)s. This year, IRAs max out at $6,500 if you’re under age 50 and $7,500 if you’re 50 or older.

However, for many people, even maxing out an IRA is a stretch. So the fact that you’re limited to $6,500 or $7,500 may not be a problem.

Plus, IRAs offer the benefit of letting you choose individual stocks to invest in. With a 401(k), you’re generally limited to different funds that may or may not allow you to invest exactly the way you want, since you’re not in charge of deciding which assets go into those funds.

And then there are investment fees to think about. Many of the funds you’ll find in a 401(k) charge hefty fees that can eat away at your returns over time. You may find that your fees are much lower in an IRA.

Don’t stress if you don’t have access to a 401(k)

You might really want a 401(k), and it’s certainly a benefit you can look for in a new job. But if you love your current job and there’s no 401(k) available there, that’s not necessarily a reason to quit. You can easily turn to an IRA for your retirement savings.

Oh, and one final thing. Another nice aspect of 401(k)s is that your contributions are deducted straight out of your paychecks so you don’t have to think about them. But IRAs pretty much let you do the same these days. All you have to do is set up an automatic transfer from your checking account to your IRA and money will land there every month. So aside from an employer match, you’re really not missing out on much.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short September 2023 $47.50 puts on Charles Schwab. The Motley Fool has a disclosure policy.

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