What To Do If Your Job DOESN’T Offer a 401(k) Plan

workers at bar

401(k) plans make it easy to set aside money for your retirement, but as we said in our last post,  fewer than half of Americans have the option to contribute to a 401(k) plan through their workplace (let alone one that matches contributions). You’re even less likely to have a 401(k) option if you’re working for a small business, which includes not only many people working in the service industry, but also at tech start-ups and new business ventures. 

How are young people without 401(k) plans supposed to save for retirement? It takes a little more conscious thought than just having your employer withdraw a sum from your paycheck before you ever even see it, but it’s actually still pretty easy!

Fund an IRA

What’s an IRA? If you’re like many people under 30, you probably have only the vaguest idea. IRA stands for Individual Retirement Account, and there are two main kinds: traditional and Roth. A Roth IRA is “better” in the sense that contributions to Roth IRAs are taxed at the time of deposit, and you can withdraw the deposit and the money it’s earned in interest tax-free later. With a Traditional IRA, you pay taxes on withdrawal, meaning you’re taxed for both the original deposit and the interest it’s earned. 

So why would anyone choose a Traditional IRA? Well, because there’s an income cap on the Roth—only married people earning less than $181,000 a year or single people earning less than $114,000 can make the maximum yearly contribution, and that contribution is set at $5,500. So if you’re making over $114,000 a year or if you’d like to deposit more than $5,500 a year into an IRA, you’ll want to open a Traditional IRA.

Make Your Tax Bracket Work For You

Does $114,000 sound like an outrageous amount of money for someone under 30 to be making? If so, then you’re not only an average millennial (in 2013 the average salary for males age 16 to 34 was $35,000, and for women it was $30,000) but you’re also probably in a low tax bracket, meaning that the money in your Roth IRA will be taxed according to your current salary, rather than the salary you make when you eventually retire, which will (hopefully) be considerably higher. So saving money in a Roth IRA is like an instant tax break!

How to Open an IRA

There are a number of different ways you can open your first IRA, including with brokers, banks, mutual fund companies, or even online services. In our next post, we’ll go over the steps for how to open your first IRA! It’s really not as intimidating as you think, we promise!

The Real Importance of Your 401K


Do not throw away free money.” When writers and financial advisors talk about 401Ks, that’s usually the first thing they say. And they’re completely right—not signing on for your 401K is one of the worst mistakes you can make, and interestingly the mistake is more grievous an error the younger you are.

Does that seem counterintuitive? It probably seems like saving money becomes more important the older you get, but actually, the earlier you start saving, the more bang for your buck those savings will have. This is because of compound interest.

What’s Compound Interest?

Compound interest is the key to making a million dollars, which is the amount of money people often estimate that one needs to save for retirement. Or if not a million—because, to be honest, that’s a pretty arbitrary figure—it’s the key to making your savings become something you can actually count on. Compound interest means that the money you put away will accrue interest and grow every year, and that new, larger amount will then accrue interest the following year, which will be even greater because the principle amount has grown, and so on and so on.

JP Morgan Asset Management’s “2014 Guide to Retirement” illustrates this point beautifully with a set of three people who all have the same annual return on their savings but save in different ways. Check this out:

jpmorgan diagramRemember when we said that savings are counterintuitive? It seems like Susan, who only invested $5,000 a year for 10 years, would have less money than Bill, who invested $5k a year for 30 years, but because Susan started ten years earlier, she actually winds up with more. And Chris, whose actual investment sum (as taken from his paycheck) amounts to only $200K, somehow winds up with over a million in the end. Crazy, right?

Your Money Grows Up Too

The reason you need to get your money into your 401(k) as quickly as possible is that it grows. We also love this story from CNN Money blogger Katie Lobosco: Lobosco started her job at CNN Money, put part of her paycheck into her 401(k) (as all her coworkers told her to!) but didn’t contribute the full amount. Here’s what she said:

“Why would I voluntarily kiss goodbye a bigger chunk of my paycheck while I’m still paying off a student loan and paying expensive New York City rent? Because I ended up cheating myself out of $23,992.”

If Lobosco had contributed that extra $142 a month to her 401(k), CNN would have contributed an extra $1,704 a year, and assuming an annual return of 5%, with compounding interest that would have been $23,992 by the time she was 67. 

The moral here? Not only will your money grow over time, but not contributing the maximum amount is, as we said, rejecting free money.


It used to be that everyone in America would ensure the security of their retirement through a pension plan—the company they’d worked for for most of their lives would give them a stipend every year. Today, pensions are rare, and the 401(k) is the new standard.

The 401(k) started as an obscure regulation that allowed workers to set aside pretax money for their pensions, but it swiftly took over the retirement world when employers realized they could substitute 401(k) matches for the more-costly pension plans. Unfortunately, fewer than half of US workers even have the option to contribute to a 401(k), and those numbers are even lower for employees of small businesses—only 45 percent of companies with fewer than 100 employees had 401(k)s as of March 2015.

If you are offered a 401(k) plan, you’d be wise to contribute a portion of your salary even if your employer doesn’t match it because that money is taken pre-tax from your paycheck, amounting to an instant tax break, and as we discussed earlier, those savings will grow. 

No 401(k) plan at all? We’ll address that in our next post! And if you want more advice about how to manage your money and save for retirement, your first step should be creating a financial plan with the Earn It Use It e-books!

Part Two: How to Have Everything You Want


In our last post, we were asking how millennials are supposed to take care of their needs and lifestyle, their debt, their savings, all at the same time. It seems like if you have debt, you can’t also save, or sometimes it feels like if you’re saving you can’t also be spending. We want to challenge this way of thinking about your money.

For starters, we don’t think the breakdown actually looks like this:


You can choose all three. And more importantly, you should! Millennials need to break out of the mindset that saving is something they should start doing when everything else is completely taken care of. The only exception would be high-interest credit card debt—unlike student loan debt, credit card debt will seriously damage your credit score and also cost you a lot more over time because of brutal interest rates. But if you’re carrying student loans, even on a salary of $30,000, you can find ways to save!

Two Words: Automated Payments

Seriously—this is the trick to saving smart! Automate payments from your checking account to your savings account. Even if it’s only $25 a week, that’ll be $100 a month—at the end of the year, you’ll have $1,200 in a savings account, which is the minimum you should save to create an emergency fund. Automating payments to your student loans is also a great idea; try to do it at the beginning of your pay period, so instead of asking what you have left at the end of the month to put towards your debt or savings, you’re asking what you have left to put toward your fun. Carrying student loan debt for longer than absolutely necessary won’t hurt you as much as it’ll hurt you to have no savings, and in fact it’ll help build your credit score!

Set Priorities

You do not have to give up the things you love in order to save, though you should prioritize. There are no wrong choices when it comes to what you’re buying, there are only your choices. If you want to spend a significant portion of your income on cocktails, lattes, or shoes, do it! This might mean you’ll have to cut back in terms of eating out or taking vacations, of course. Everyone has different priorities, and the whole point is to enable you to meet yours!

Make a Financial Plan

This is really the key for success. Most people are afraid of charting out their finances because they think they’ll realize they don’t have enough, but at Earn It Use It, our message is that you have more than enough to get started! Financial planning is a way to empower yourself to get the things you want from your life, whatever those things are. Planning will make your money go farther, and help you effectively start saving even while you’re spending or paying off your debt.

So go get started! There is no time like now when it comes to planning for your future, your independence, and your dreams.