401(k)s should be available to more part-time workers starting in 2024. Here’s why participating in a 401(k) can be expensive.

Saving for retirement is a great way to help you live comfortably as you age. However, one problem some workers face is the inability to take advantage of employer-sponsored retirement plans.

According to the Bureau of Labor Statistics, only 66% of private sector workers have access to such plans. But by 2024, that percentage could be higher.

Under the Secure Act, starting in 2024, employers must offer a company retirement plan to part-time employees who work more than 500 hours per year for three consecutive years. So if you don’t yet have access to your company’s 401(k), 2024 could be the year you finally get to participate. And for this reason, it is a good idea to do so.

1. Tax-exempt donations

You don’t get a tax break by putting money into a savings or brokerage account. A traditional 401(k) allows you to shield some of your income from taxes because your contributions are treated tax-free.

Let’s say you put $3,000 into your 401(k) in 2024. Normally $3,000 of your income would be taxable, but not in this case. If you’re in the 22% tax bracket based on gross wages, a contribution of $3,000 would save you $660 in taxes.

2. Tax-deferred profits

If you make money by investing in a regular securities account (selling stocks for capital gains, receiving dividends, etc.), you must pay taxes on the profits every year. Not so with a 401(k).

With a 401(k), you defer taxes on your investment gains. This means that instead of receiving an annual tax bill, you only pay taxes when you make withdrawals.

Here’s how it works: Let’s say you contribute $20,000 to your 401(k) over time and your balance grows to $80,000. If you withdraw $3,000, you will pay taxes on that $3,000 distribution. This is how the IRS taxes your profits. But eventually, not right away.

3. Extra funds for retirement

Employer matches for 401(k)s are not guaranteed. However, many companies that sponsor these plans also match worker contributions to some degree.

So let’s say your employer’s policy is to match contributions 100% up to $3,000 per year. So putting in $3,000 means getting an extra $3,000 from your employer. And remember, you can further increase your balance by investing money you receive from your employer.

If you still don’t have access to a 401(k), there’s another good option.

It’s a good thing that more workers will have access to 401(k)s in the new year. But if that’s not an option for you, don’t worry. With an IRA, you can enjoy two of the three benefits above.

An IRA is not tied to a specific employer. All you need is the income you need to open a job and contribute.

You can open an IRA at almost any financial institution. Because there is no employer associated with your account, you cannot participate in an employer match, but a traditional IRA can provide tax-free contributions and tax-deferred gains like a 401(k). So even if you don’t have access to an employer plan, you can still reach your retirement savings goals on your own.

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