No 401(k) match? Save anyway

Like it or not, it's your best hope

A lousy match, no match, no plan -- none of these is an excuse for not saving.

To illustrate, let's do some math. We'll assume a worker starts contributing to her 401(k) at age 25, chipping in 6% of her $40,000 salary. Assuming 3% annual salary increases and an 8% average annual return, she'd accumulate $924,153 by age 65. (You can change the assumptions, or figure out how much you can save, by using CCH's 401(k) savings calculator.) Now:

• With a typical 50% match of up to 6% of her salary, her kitty would reach nearly $1.4 million, or 50% more. Clearly, the match seriously helps.

• She could make up for the loss of the match and accumulate the same $1.4 million nest egg by contributing 9% of her pay throughout her working lifetime.

• Of course, if she had a match and contributed the same 9%, her 401(k) could grow to more than $1.8 million, or 33% more than without the match. Once again, she could make up the difference by contributing 3% more of her pay.

Easier said than done? Of course.

For some folks, saving anything is a challenge. Those who find it tough to save at all or who got a late start are the ones who need all the help they can get. They should do their utmost to find a job at a financially thriving company that offers a fat match, then contribute at least enough of their salaries to get the full advantage of that match.

For many others, though, it's a matter of priorities. It simply means spending a little less now so you can have a whole lot more in retirement. If your company is willing to help, that's great. If it's not, you still need to save since, matched or matchless, you'll be the one living off this stash one day.

3 game plans

Many financial planners recommend what's called tax diversification when it comes to retirement savings. That means splitting your retirement contributions between accounts that give you an upfront tax break, such as 401(k)s and tax-deductible IRAs, and those that give you tax breaks in retirement, such as Roth IRAs and taxable brokerage accounts.

So if you have a company match at work, you would:

• Contribute enough to get the company match.

• Then max out a Roth IRA (up to $5,000 a year for 2008, more than $6,000 if you're 50 or older) if you qualify.*

• If you can save more, boost your 401(k) contribution.

If you don't have a match at work, you would:

• Split your contributions between your 401(k) and a Roth IRA (if you qualify*) until you max out the Roth.

• If you can save more, toss it into the 401(k).

If you don't have a workplace plan at all, you should:

• Split your contributions between a tax-deductible IRA and a Roth IRA (contribution limit is $5,000 total for both accounts, or $6,000 if you're 50 or older).

• If you can save more, contribute to a taxable brokerage account.*

*You can make a full contribution to a Roth IRA if your modified adjusted gross income in 2008 is $159,000 or less for married couples and $101,000 or less for singles. If you don't qualify, consider putting the bulk of your money into your 401(k) and a smaller amount into a taxable brokerage account. There's no upfront deduction, but you qualify for favorable capital gains rates if you hold your investments for at least one year.

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Published Aug. 14, 2008

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