Nearly 42 million Americans work for small businesses. Just 14 percent of small employers offer a retirement plan, according to the U.S. Government Accountability Office.
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 requirements.
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 employer 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.
A Roth 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 Roth penalty-free.
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 working. Other 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 HSAs.”
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.”