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401(k)s Should Become Available to More Part-Time Workers Starting in 2024. Here’s Why It Pays to Participate in One

Saving for retirement is a good way to help ensure you’ll be able to live comfortably when you’re older. But one challenge some workers face is not having access to an employer-sponsored retirement plan.

Only 66% of private-sector workers have access to such a plan, says the U.S. Bureau of Labor Statistics. But in 2024, that percentage could rise.

Thanks to the Secure Act, beginning in 2024, employers have to make their company retirement plans available to part-time employees who work at least 500 hours a year for three consecutive years. So if you’ve yet to gain access to your company’s 401(k), 2024 might be the year when you’re finally able to participate. And it pays to do so for these reasons.

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1. Tax-free contributions

When you put money into a savings account or brokerage account, you don’t get a tax break in the process. With a traditional 401(k), your contributions go in tax-free, so you get to shield some of your earnings from taxes.

Let’s say you put $3,000 into your 401(k) in 2024. Normally, that $3,000 of your income would be taxable, but in this case, it won’t be. If you fall into the 22% tax bracket based on your total wages, that $3,000 in contributions saves you $660 in taxes. 

2. Tax-deferred gains

When you invest in a regular brokerage account and make money (selling shares of stock for a capital gain, receiving dividends, etc.), you have to pay taxes on your gains every year. Not so in a 401(k). 

With a 401(k), investment gains are tax-deferred. This means that instead of facing a yearly tax bill, you only pay taxes when you take withdrawals. 

Here’s how that might work. Let’s say you contribute $20,000 to your 401(k) over time and your balance grows to $80,000. If you take a $3,000 withdrawal, you’ll pay taxes on that $3,000 distribution. That’s the IRS’s way of taxing you on your gains — but eventually, not right away.

3. Free money for your retirement

An employer match in your 401(k) is not guaranteed. But many companies that sponsor these plans also match worker contributions to some degree.

So let’s say your employer’s policy is to match 100% of up to $3,000 a year in contributions. Putting in $3,000 therefore means getting another $3,000 from your employer. And remember, you can then invest the money you get from your employer to help grow your balance even more.

There’s another good option if a 401(k) still isn’t available to you

The fact that more workers might get 401(k) access in the new year is a good thing. But if that’s not going to be an option for you, worry not. You can enjoy two out of three benefits above with an IRA.

An IRA isn’t tied to a specific employer. All you need is earnings from a job to open and contribute to one. 

You can open an IRA at almost any financial institution. While you won’t be privy to an employer match (since there’s no employer associated with your account), a traditional IRA could give you tax-free contributions and tax-deferred gains just like a 401(k). So if you won’t be getting access to an employer plan, you can still make headway on your retirement savings goal on your own.

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