Nearly 42 million Americans work for
small businesses. Just 14 percent of small employers offer a retirement plan,
according to the U.S. Government
What's worse: Most workers without a
workplace plan have no retirement savings, U.S. Secretary of Labor Alexander
Acosta said in a press conference this week.
The Labor Department this week
unveiled a new
proposal aimed at tackling this issue.
The proposed rule would allow small
businesses to band together to offer 401(k) plans to their workers. The plans
would be offered by associations of employers based on geographic location or
by industry. While small employers are now able to collaborate to provide
retirement plans in certain circumstances, the proposal aims to ease those
Under the initiative, workers would
have more opportunity to save through these arrangements, called Association
Retirement Plans. Small businesses, in turn, would be able to better compete
with larger employers for talent and provide plans at lower costs.
The Labor Department's move follows
President Donald Trump's August executive order to strengthen retirement
security in America, Acosta said. That order called for cabinet members to look
for more ways to expand Americans' opportunities to save for retirement.
But if and when this proposal would
go through is unclear. In the meantime, about 38 million private-sector
employees have no access to a workplace retirement savings plan.
If you're one of them, there are
some things you can do now to make sure you don't fall behind.
Talk to your employer
If you don't have a retirement plan,
start by talking about it with your company.
"Sometimes the mployer doesn't
know that there's a need for it, so they don't look at the options available
and set one up for their employees," said financial advisor Winnie Sun,
founder at Sun Group Wealth Partners.
Be sure to let your employer know
that there are incentives for them to offer such a plan.
That includes tax credits that are
available for employers who sponsor a retirement plan, according to Aaron Pottichen,
senior vice president at Alliant Retirement Consulting.
The owner, your boss, could use the
plan to shelter their own taxable income. And instead of paying bonuses in
cash, they can instead contribute to the savings program — and build incentives
for employees to stay, Pottichen said.
Open your own retirement accounts
If you are investing on your own,
there are several ways you can stash away money for your long-term goals.
First, you can contribute to an
individual retirement account. In 2018, you can contribute up to $5,500 in a
traditional pre-tax IRA, and up to $6,500 if you are 50 years old or over.
Alternatively, you may choose to fund a post-tax Roth IRA.
IRA is preferable in many cases because your money will grow 100 percent
tax-free, Sun said. In addition, it can also serve as an emergency fund for
younger investors because you can withdraw the principal you contributed to a
Ideally, you want to fully fund your
IRA in the first month of the year, Sun said, in order to get an extra 12
months of returns.
If you are married, you may want to
contribute to a spousal IRA in your spouse's behalf, said Cathy Curtis, founder and
chief executive officer of Curtis Financial Planning.
Spousal IRAs let you put aside an
additional $5,500 to $6,500 for your husband or wife, provided they are not
rules apply, depending on whether you are investing in a traditional
IRA or Roth IRA.
Higher earners who are not eligible
to contribute to Roth IRAs may want to consider a back-door Roth IRA, whereby
assets in a traditional IRA are converted to a Roth IRA, Curtis said.
Fund a health savings account
If you have a high-deductible health
plan through your employer, you also have access to a health savings account.
The pre-tax money you put in that
account can count towards your retirement savings, Curtis said.
In 2018, individuals can contribute
up to $3,450 and families can put in up to $6,900 in these accounts.
Those limits, combined with what you
can save in your IRAs, can add up to substantial savings, Curtis said. And
unlike flexible spending accounts, the balances in your health savings accounts
can be carried over from year to year.
"You don't have to spend it;
you can invest it," Curtis said. "There's a lot of cool things about
Consider going it alone
If your employer is not interested
in setting up a 401(k) plan, you may want to ask them to switch your status to
a 1099, rather than a W-2, employee, Sun said.
Doing so will let you be paid as an
independent contractor, freeing you to set up your own company.
Then, you could establish a
retirement plan — such as a SEP IRA, a one-person 401(k) or even a pension
plan, depending on your income — as a self-employed individual.
"The good news is it's not too
complicated," Sun said. "Any decent tax professional should be able
to give you some guidance.
"When you're making $50,000 to
$60,000, it's worthy of the conversation."