I’m a bartender. How can I save in my employer’s 401(k)?

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Q. My employer recently instituted a 401(k) plan and I want in! The problem? I work in a restaurant, and as a tipped employee, the taxes for my tips are taken out of my paltry minimum wage, often leaving me with a paycheck of $0. Nada. I’ve never had a 401(k) so this is all new to me, but I’m told that contributions have to be deducted from the paycheck. Any thoughts on how I can contribute to this plan given my circumstances, or am I screwed out of being able to take advantage of this?
— Baffled bartender

A. It’s great that you want to save for retirement.

But yes, you’re in a tough spot.

A 401(k) plan that is a “Safe Harbor” plan defines compensation as wages, tips and other compensation, said Jody D’Agostini, a certified financial planner with Equitable Advisors/The Falcon Financial Group in Morristown.

“Since you receive a paycheck of zero, if there is an employer match, they would still need to make their employer matching payment based on your eligible compensation,” she said.

D’Agostini said you should talk to your tax preparer if you can reduce the taxes taken out from your pay stub. If you can, then you would need to call whoever runs your payroll and instruct them to override your federal and state deductions by this amount.

Then you could set up your contributions, hopefully saving at least enough to get the full employer match.

In the meantime, you can still save for retirement using either a traditional IRA or a Roth IRA, she said.

“They both have contribution limits of up to $6,000 a year or $7,000 for those aged 50 and up,” she said. “If you still have additional savings earmarked for retirement, you can save in a tax-managed brokerage account as well.”

D’Agostini said you can also talk to your employer about changing how its payroll works.

“Some employers are changing and including tips in the paycheck which will potentially alleviate this problem, but then you will be paying your portion of payroll taxes on these earnings.”

Given that most tips are now paid with the bill by credit cards, this is easier to do, she said.

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This story was originally published on March 8, 2022.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.