No employer 401(k) match at the office? No problem

  • A quarter of all U.S. workplaces offer no 401(k) plan matching program.
  • Still, 401(k) plans are an effective way for workers to save for retirement.
  • A 401(k) plan offers higher tax-deferred savings limits, the ability to borrow against savings and the safety net of stable value funds.

There's been lots of talk lately about companies raising their 401(k) plan matching contributions, but what if you happen to work for one of the roughly 25 percent of firms in America that don't offer an employer match? Should you even participate in the 401(k) plan?

I will provide you with several reasons why, even without a 401(k) match, you should still take part.

Businesswoman putting money into 401K jar at desk
Jamie Grill | Getty Images

More savings opportunity. The maximum amount a person under 50 years of age can contribute to an individual retirement account is $5,500. If you are over 50, the IRA maximum is $6,500. Compare this to the maximum an employee can defer into a 401(k) for 2018: $18,500, plus an additional $6,000 for those 50 and older. It's evident that a 401(k) plan allows employees to save significantly more in their 401(k) plans than what they would be allowed to save in an IRA.

No income limitations for Roth contributions. Another key factor is that 401(k) plans do not have an income limitation when it comes to making Roth (or after-tax) contributions. Roth IRAs, however, do have income limits, which kick in when people make a certain amount of money when filing as a single filer or married couples filing jointly and qualifying widow filers. The income limitations phase in for single filers at $118,000, and people become completely ineligible once they earn more than $133,000. For married couples filing jointly and qualifying widow filers, the income limitation phase starts at $186,000, and people are completely ineligible at $196,000. (The numbers mentioned are for 2018 tax filing year.)

With a 401(k) plan, a person's taxable income does not factor into the ability to defer into the Roth portion.

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So you're a 401(k) 'millionairess.' Now what?

You can take a loan — and pay yourself interest. Although this is rarely recommended, people can take a loan from their 401(k) plan. This feature is not allowed with IRAs. In the case of an IRA, people can withdraw money from it and, as long as they re-deposit it within 60 days, it is not considered a taxable distribution. I'm not recommending that anyone take a 401(k) loan, but if a person is caught in a financial hardship and is low on existing cash, it may be a helpful way to access cash without having to take a distribution.

Additionally, one of the benefits of a 401(k) loan is that the interest incurred is paid back to the participant taking the loan. However, any new deferrals are turned off until their loan is paid back in full.

You have the stable value fund advantage. Stable value funds may be the most unsexy investment in a 401(k), but there are some advantages to them. Stable value funds exist only in employer-sponsored retirement plans; you cannot access one via an IRA. These funds act as a cash alternative in retirement plans and will provide investors will an interest credit. This interest rate is low right now but is typically higher than what can be earned in a money market account, which is a common cash alternative in IRAs.

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Additionally, stable value funds provide a guaranteed floor, meaning that anyone who has money in them will not lose money. This is a unique feature and can be a benefit in times of immense market downturns or if investors are seeking a safe haven for their money.

IRA accounts allow participants to withdraw money at any time, which makes it that much easier to indulge in knee-jerk reactions to, for example, having to have that new pair of shoes. With a 401(k) plan, however, our ability to give into our emotions and withdraw money on potentially dubious purchases is contained, because you generally cannot access the funds until you are no longer employed by the company. This, in effect, puts controls on the money and helps investors protect their retirement assets from their sometimes biggest enemy in saving for retirement: themselves.

You can have both. Saving in a 401(k) plan does not deny a person the right to save in an IRA. The only time people are prohibited from saving money in IRA accounts (on a pretax basis) or Roth IRAs is if their taxable income precludes them from doing so. A person's participation in a 401(k), however, has no impact on his or her ability to save in an IRA.

— By Aaron Pottichen, president of retirement services at CLS Partners

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