Job without 401K

[PlayinwithFIRE]

I am about to start a new FT job in a very new startup. So new, they haven't quite got their benefits package figured out yet

So i was thinking about what it means to not have a 401K plan at a company...maybe I'm missing something (and i hope you tell me I am) but it seems like this is a quite a big missed benefit.

Most searches of "company without 401K" tell you that you can contribute to an IRA/or trading account or HSA if available...but this all seems to pale in comparison to a 401K.

401K is pre-tax dollars (a 10-20% boost depending on your tax rate) , possibly with a company match, and up to ~$30,000 per year contribution limit , more if you are older with catch-up contributions.

IRA/HSA/Trading is post-tax dollars, no match, IRA limit of $7kish, maybe no limit on HSA/Trading.

Am I missing something? This seems unfair to people who happen to work for a company that does not offer 401K plans.

For me, its a temporary issue as a plan will be implemented but it got me thinking...

 

[MarieIG]

Yes, it can be a big missed benefit.

 

[Al18]

Does the startup offer stock options or a yearly bonus? If it were me, I would be maxing out RothIRA contributions and also putting some money in a taxable brokerage account.

 

[Koolau]

Lots of things involved, but I credit my 401(k) with my ability to FIRE. Among a few other things, my 401(k) made me FI at 51 (along with pension/health care vesting) and FIREd at 58.



Now it's up to you to find ways to "reconstruct" your own equivalent of a 401(k) plan. Lots of folks here smarter than I on the subject, but I'd max Roths and tIRAs to begin with. Then I'd find smart, tax efficient taxable savings as well. The nice thing about a 401(k) is that it's more or less automatic, so perhaps you can make whatever plan you establish as automatic as possible. GOOD LUCK

 

[GrayHare]

Presumably, no 401k benefit means your wages are higher. You can invest part of those extra wages in something like BRKB that pays no dividends. Then, just like a 401k, you'll pay no tax on BRKB's growth, and when you do eventually withdraw, only cap gains tax will apply, not the 401k's higher ordinaty income tax. I'd take that over a 401k any day.

 

[Aerides]

Am I missing something? This seems unfair to people who happen to work for a company that does not offer 401K plans.

It's not a matter of fair, it's a personal choice, pros/cons etc. Just like people wanted jobs with pension plans, or generous vacation allowance, or other benefits.

It's also overhead and cost for the company to handle, so a smaller/newer one might forgo that administration and effort in the early years.

 

[pdxgal]

Years ago I took a job with a company that had a 6 month waiting period before you could participate in the 401k, which offered a 6% company match. I always maxed out my contributions, so it was a financial hit. I used that as a negotiating point for compensation, and the company agreed to pay me a performance 'bonus' after 6 months to make up for the opportunity cost of no 401k for that period.

 

[Sunset]

Presumably, no 401k benefit means your wages are higher. ....

Nope, not connected at all. Just as easily could Presumably means the owners get more profit, or the company is barely making expenses and cannot afford it.

I've worked where there is no 401K , it sucked as I knew I was missing out on a 2,3,4,5,6 percent match and the higher pre-tax savings.

 

[Sunset]

.....
Am I missing something? This seems unfair to people who happen to work for a company that does not offer 401K plans.

..

It means all else being equal it is a lousy job, or unfair to worker.

I tend to look at employment compensation as a combination of many factors, so you can trade off some things for more/better other things.

money, holidays, overtime paid, pension, 401K quality, 401K match, work environment, work effort.

In the past, I've gone to the boss and explained I had 2 wk holidays, but wanted 4 weeks, so don't pay me while I'm gone the 2 extra weeks. A simple trade off of some work aspect, but really made the work more valuable to me.

 

[FlaGator]

Part of the deal.

Working for a startup, there should be offsetting benefits - stock grants, options, RSUs, etc. But all those are hard to value given the uncertainty of a startup.

When you take the job, you're making the bet those offsetting benefits (assuming they are offered) will pay off more than a 401k - a lot more, given the risk.

So, take the job if you're willing to make the bet. Otherwise keep looking.

 

[Lorenzo]

Part of the deal.

Working for a startup, there should be offsetting benefits - stock grants, options, RSUs, etc. But all those are hard to value given the uncertainty of a startup.

When you take the job, you're making the bet those offsetting benefits (assuming they are offered) will pay off more than a 401k - a lot more, given the risk.

So, take the job if you're willing to make the bet. Otherwise keep looking.

This. Employees who choose to work for a startup are taking more of a risk than if they were to work for an established company. A startup that does not offer stock options and such sweet inducements may simply offer a higher salary. Whether higher salary or stock options, etc., there is generally some tangible economic benefit about a startup that makes it more attractive to employees than an established company. Although it may seem that one benefit of working for a startup is a greater opportunity for advancement, I believe the risk of the company not surviving offsets that potential benefit.

 

[CRLLS]

Nope, not connected at all. Just as easily could Presumably means the owners get more profit, or the company is barely making expenses and cannot afford it.
I've worked where there is no 401K , it sucked as I knew I was missing out on a 2,3,4,5,6 percent match and the higher pre-tax savings.

Me too. I started work before there were 401Ks and before there was such a thing as IRA, Roth etc. To me, comparing benefits between two options is a matter of comparing opportunities of today vs tomorrow. Neither are absolute. BTW, I have seen many places that offer a 401K but do not offer a match at any number. 401K does not mean there is a match. Something else to consider.

 

[HI Bill]

What I never considered fair was the difference in contribution limits between a 401(k) [currently $23K; +$7.5K catch-up] vs an IRA [currently $7K]. In the government's attempt to be somehow fair, they disadvantage employees without a 401(K) by not allowing them to save as much tax-deferred, and at the same time, they lose out on potential company-match contributions.

I had access to 401(k) plans for my entire 30-year career [all four of the companies I wo#ked for matched 50% of your first 6% contribution], and had access to an ESOP (employee stock ownership plan) for 17 years, and an ESPP (employee stock purchase plan) for 6 years. These plans helped me save earlier and more, and definitely contributed to ER. Without them, I'd have been looking at just R at 65 or so.

 

[pb4uski]

.... 401K is pre-tax dollars (a 10-20% boost depending on your tax rate) , possibly with a company match, and up to ~$30,000 per year contribution limit , more if you are older with catch-up contributions.

IRA/HSA/Trading is post-tax dollars, no match, IRA limit of $7kish, maybe no limit on HSA/Trading.

Am I missing something? This seems unfair to people who happen to work for a company that does not offer 401K plans. ...

It is unfair to some, particularly those who are currently in a high tax bracket and expect to be in a low tax bracket in retirement.

For many low-to-middle income earners though, that would not be the case so the $7kish deductible traditional IRA or Roth IRA may be sufficient for them. This would be sufficient for the vast majority of Americans, especially those who live paycheck-to-paycheck so no particular unfairness for them.

 

[gwill1010]

I turned down a pretty good job because of no 401K. About 100K/yr. I was maxing out. So, reducing your agi 25% + no match...

 

[bada bing]

IRA/HSA/Trading is post-tax dollars, no match, IRA limit of $7kish, maybe no limit on HSA/Trading.

Am I missing something? This seems unfair to people who happen to work for a company that does not offer 401K plans.

Minor correction. Traditional IRA is pre-tax, just like 401K traditional contributions. You'll get the tax benefit when filing for the year. HSA is also pre-tax. If you have a company sponsored HSA plan with voluntary salary deductions, the contributions are not only pre-FedTax, but also pre FICA. If you make the contributions out of pocket, then only pre-FedTax.

 

[Badger]

Me too. I started work before there were 401Ks and before there was such a thing as IRA, Roth etc. To me, comparing benefits between two options is a matter of comparing opportunities of today vs tomorrow. Neither are absolute. BTW, I have seen many places that offer a 401K but do not offer a match at any number. 401K does not mean there is a match. Something else to consider.

+1 I didn't get to contribute to an IRA (with a match of about 5% on the first 10% of salary) until around 1985. I changed jobs 8 years later. Then I had a 403b with no match and an income of about $34k and my wife's of about $24k. We still managed to pay off our house and save enough to have a nest egg of 7 figures and a paid off house. It isn't easy but it is possible. Quit a few others here have done similar.

 

[thod]

I do not understand why some of the comments have a 'the company is cheating, being stingy, or just doing something wrong' kind of feel.

There is no law that says employment requires a 401k, a 401k match, vacation days, healthcare, maternity leave, etc.

These are perks that they provide to entice people to work there. That is why it is called a 'benefits' package. We would not include paying income taxes or FICA part of a benefits package.

 

[CRLLS]

I do not understand why some of the comments have a 'the company is cheating, being stingy, or just doing something wrong' kind of feel.

There is no law that says employment requires a 401k, a 401k match, vacation days, healthcare, maternity leave, etc.

These are perks that they provide to entice people to work there. That is why it is called a 'benefits' package. We would not include paying income taxes or FICA part of a benefits package.

You may want to check the current law. A few states have laws on the books regarding paid family leave as do Federal employees. I do agree about offering a 401k being voluntary. Benefits however do come and go. What may be company policy today can be either frozen to existing employees or removed totally.

 

[Texas Proud]

How large of a company? For very small companies it does not make sense to have a 401(k)...


Now, they could outsource their HR function to one of many companies that also offer a 401(k) or they can call Fidelity as they have a plan for small employers... the company where I got it started had 20 people...

 

[Sunset]

How large of a company? For very small companies it does not make sense to have a 401(k)...


Now, they could outsource their HR function to one of many companies that also offer a 401(k) or they can call Fidelity as they have a plan for small employers... the company where I got it started had 20 people...

It has now gotten a lot easier for companies to offer a 401K.

I have a 401K for my small business of 1 person

 

[Koolau]

All this talk of fair/unfair seems pointless. What IS fair? You're offered a j*b at a salary with whatever benefits and with or without a 401(k). You decide to take it or you decide not to take the j*b. Just the way it is - not fair or unfair.



Megacorp had a 401(k) with a decent match. But when they didn't make enough money, they cut the match. No one liked it, but that was neither fair or unfair. Everyone was free to use the exit door or stay. Megacorp was willing to take the hit in employee loyalty/morale/retention. Just the way it was. Not a matter of fairness. YMMV

 

[mwilson]

If the startup still figuring out benefits maybe you could steer them to offering a Simple IRA. Up to $16k($19.5k if older than 49) pre-tax contributions allowed, and they must provide either 2% contribution or 3% match. The overhead is lower than a 401(k) so easier for the startup to administrate.

My wife's last job had 4 employees but they had a Simple IRA.

 

[rodi]

I do not understand why some of the comments have a 'the company is cheating, being stingy, or just doing something wrong' kind of feel.

There is no law that says employment requires a 401k, a 401k match, vacation days, healthcare, maternity leave, etc.

These are perks that they provide to entice people to work there. That is why it is called a 'benefits' package. We would not include paying income taxes or FICA part of a benefits package.

Companies larger than 50 employees need to provide healthcare or pay fines.

But I agree with what several have said: You weigh the total compensation package when selecting a job. My husband worked for a few smaller firms that had super crappy healthcare and 401k options. (401k had lousy expense fees as wells as loads.) We knew that going in, and he saved enough for the match (3%), and saved the additional money outside his employer plan. I had a great 401k with low expense ratios, good index funds, I maxed mine, with the catchup. We had him covered on my family coverage through my employer because it was cheaper *and* more comprehensive coverage than what his work offered. He took the job because it had interesting projects that he wanted to work on... Not to get rich.

If I had not had a good 401k I would have done an tIRA, roth IRA, and HSA to the max. As it was I did a workplace provided 401(k). I didn't do HSA because work's HDHP option wasn't as good/cost effective as the HMO.

 

[TheWizard]

All this talk of fair/unfair seems pointless. What IS fair? You're offered a j*b at a salary with whatever benefits and with or without a 401(k). You decide to take it or you decide not to take the j*b. Just the way it is - not fair or unfair.



Megacorp had a 401(k) with a decent match. But when they didn't make enough money, they cut the match. No one liked it, but that was neither fair or unfair. Everyone was free to use the exit door or stay. Megacorp was willing to take the hit in employee loyalty/morale/retention. Just the way it was. Not a matter of fairness. YMMV

Exactly.
OP should evaluate the entire compensation package, not just the salary.
If you can do better elsewhere then maybe vote with your feet...