New Employer - No 401(k)

[Hristo Botev]

Hello. Earlier this year I switched from an employer that had a 401(k) to one that doesn't (yet). I'd gotten quite used to having my max contribution deducted from my paycheck every month, so that even for months where my savings otherwise sucked, at least I knew I was maxing out my 401(k). My new employer is planning on having a 401(k) set up before the end of the year. My question is whether I should go ahead and set up some sort of Simple IRA until that happens, or more generally, as someone whose experience/knowledge of retirement planning is limited to putting max 401(k) contributions on auto-pilot and otherwise not thinking about it, what should I be doing regarding tax-advantaged retirement planning now that I'm at an employer that doesn't have anything set up yet.

FWIW, I did a rollover IRA to Vanguard of my 401(k) from my old employer ; and I think my income is too high to get any tax benefits from any IRA other than a 401(k) or a Simple IRA. I am still contributing money to post-tax investment accounts, but I'm not currently making any contributions to a tax-advantaged retirement plan.

Thanks! And sorry in advance for what is no doubt a very elementary question.

[jacob]

I was not aware one could set up a SIMPLE IRA for oneself?! Usually, that's something an employer does because the paper/regulatory hassle is cheaper/easier than a 401k. Typically a preference for small businesses (with few employers).

If you're getting a 401k later this year, then save enough money so you can put 100% of your salary in once you get it. At this point you might even be able to negotiate with your payroll people to hold back some of your salary now, so you still have 18k's worth of salary-firepower when you do get it. If you're already making so much that you're phased out of an IRA (like what's that ~$9k+/month), you may not have to do that.

FWIW, we've always set the 401k to max in the first months of the year. We literally draw/drew no salary until it is/was maxed. Strategic decision. If anyone gets fired, they still maxed as much as possible.

[prognastat]

Jacob beat me to it. If it is likely they will have it set up before the end of the year then just save it and contribute the full amount right at the end of the year and live off your savings for those pay checks instead.

[Hristo Botev]

Thank you both! That makes total sense. For the Simple IRA, I think you're right that I couldn't set it up myself, but as I recall it was just cheap/easy for an employer to set one up, as opposed to a 401k which can be relatively difficult/expensive for a small employer to set up

[suomalainen]

Consider also putting $5500 per person into a traditional IRA and rolling it over into a Roth IRA a few days later. Backdoor Roth, now blessed by Congress (at least in the whatchamacallit, house report or something). I've done this for a couple years now. No audit yet. YMMV. Ha.

EDIT: You get no pre-tax benefit and there are some other rules to watch out for, but I didn't have a normal IRA so those rules didn't apply to me. The benefit is the Roth access if your income is too high to do a Roth directly.

[Chris]

You get no pre-tax benefit and there are some other rules to watch out for, but I didn't have a normal IRA so those rules didn't apply to me. The benefit is the Roth access if your income is too high to do a Roth directly.

Yeah, it's those "other rules" that would be problematic in this case. Hristo mentioned that he rolled his 401k into an IRA, so he would be subject to the pro-rata rule if he attempted a backdoor conversion.

If Hristo's employer does get that 401k setup though, he could roll that IRA into the 401k, clearing his plate for backdoor-conversion goodness later this year.

[suomalainen]

Can he unroll the IRA back into the old 401k if the new 401k doesn't come through?

[OTCW]

For whatever reason, my 401k plan will only let you contribute up to 50% of my paycheck per pay period. This is the first one I've had that has that rule, but I'm assuming they do it for a reason that others might also do, so that could come into play if you are trying to max it out with only a few months left in the year to do so.

[jacob]

I've run into Fidelity capping it at 75%. Your employer (as well as you) still have to pay SS+ taxes ... so this is in defense of the software setting it at 100% and your employer/you getting caught out owing SS+ taxes which aren't deductible. 50% seems a bit harsh. I suspect it's due to the fact that most salarymen/employers/funds think that contributing 15% is way above and beyond.

[OTCW]

That at least makes some sense. Our HR people had no idea, and pretty much looked at me like I was insane for asking to contribute that much.

[prognastat]

@OTCW

That is probably the reason why the limit is higher, because they never imagined someone would want to contribute that let alone more.

[Chris]

Can he unroll the IRA back into the old 401k if the new 401k doesn't come through?

Probably not. Company 401k plans are usually only open to current employees. Most employers allow former employees to maintain their accounts, but not to contribute more.