The ubiquitous 401(k) plan is an uber-popular type of retirement plan, but it’s not the only way to fly. Many people do just fine saving for retirement without ever having a 401(k).
But they need the right account.
It’s very unlikely you’ll save enough just by tucking money away in a high-yield savings account or a money market account. You want to invest your retirement funds so they grow into a nest egg big enough to sustain you in retirement.
If your workplace doesn’t offer a 401(k)—and many don’t—or you’re self-employed, take heart. You can save for retirement without a 401(k), and today, I’m going to explore several of the methods available to you.
And remember: The earlier you begin investing for retirement, and the more money you invest early on, the easier it will be for your funds to accumulate.
What Can I Do if I Don’t Have a 401(k)?
According to the U.S. Bureau of Labor Statistics, 68% of employed Americans have access to a 401(k). But that means nearly a third of the country’s employees don’t have access to one.
Fortunately, it’s not the only way to save for your future. Virtually all American adults can sign up for several types of retirement accounts—they can open one or contribute to several simultaneously to take advantage of their different strengths. In fact, many people who contribute to a 401(k) also build their retirement savings using one or more of the accounts I’m about to discuss.
How to Save for Retirement if Your Employer Doesn’t Offer a 401(k)
Rather than a 401(k), you can start a retirement fund with one or more of the accounts below.
1. Individual Retirement Accounts (IRAs)
Individual retirement accounts (IRAs) have been helping people save for nearly 50 years—and giving them a tax break to do it. Those who want an IRA can choose a traditional IRA, a Roth IRA, or both.
Traditional IRA vs. Roth IRA
While both of these accounts have tax advantages, their benefits differ.
A traditional IRA is a tax-deferred account. You fund the account with pre-tax dollars, and as long as you and your spouse (if you have one) don’t have access to a workplace retirement plan, your contributions are fully tax deductible, lowering your tax burden for the year. If you or your spouse are covered by a workplace plan, whether and how much of your contribution is deductible depends on your income.
As your IRA investments grow over the years, you don’t pay taxes on your earnings until you make withdrawals during retirement. Also, you’ll likely be in a lower tax bracket in retirement than when you contributed to your IRA, so it’s an ideal place to store any investments that don’t have tax advantages.
- Account minimum: None
- Fees: $4/mo. or 0.25% annually
Investing in ETFs can be a smart way to diversify your portfolio, and Betterment’s traditional IRAs and Roth IRAs are ideal vehicles for ETF investments—which are the only option available in the account.
Betterment offers several low-cost ETFs from major fund providers that align with different themes and investments. If you’d like to invest in socially responsible companies, for example, you might choose to buy shares of its Broad Impact ETF, which focuses on companies highly ranked for environmental, social, and governance (ESG) factors.
A Roth IRA operates differently. You fund a Roth with post-tax money (money that has already been taxed). Money grows tax-free like a traditional IRA, but when you withdraw money in retirement, you don’t have to pay any taxes. You should contribute to a Roth IRA at any point in your life when you think you’ll have a higher tax bracket in retirement than your current one.
Roth IRAs with SoFi Invest
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SoFi offers many perks to its customers, including no annual or opening fees on many different account types. Its SoFi Invest Roth IRA could be a good choice if you’re an existing SoFi customer.
SoFi offers two options catering to different investment styles. Its active investing option lets you choose and manage your own investments. And with its automated investing option, SoFi will select and manage investments on your behalf. You won’t pay management fees with either account option, and SoFi doesn’t charge commissions for stock or ETF trading. Several other investment choices are also available, including options and margin trading. However, underlying fund fees may apply depending on the investments you choose, and you will have to pay a modest $20 fee to close your account.
Another key difference between traditional and Roth IRAs is who is eligible to contribute. Anyone can contribute to a traditional IRA, no matter how much they make. Income limits can sometimes come into play affecting whether their contributions are tax-deductible, but they can still participate.
Meanwhile, depending on how much you make, you could be shut out of a Roth. In 2023, anyone with a modified adjusted gross income of over $153,000 (single or head of household) or $228,000 (married filing jointly) is ineligible to contribute to a Roth IRA that year.
The “phase-out range” of workers who can make partial contributions, but not the full limit, is $138,000-$153,000 (single or head of household) and $218,000-$228,000 (married and filing jointly).
If eligible, some people choose to contribute to both types of accounts so they have both taxable and tax-free withdrawal options during retirement.
You will generally face a 10% penalty for withdrawing money from both IRAs and Roth IRAs before age 59½, though there are some exceptions. (Additionally, with Roth IRAs, at least five years must have passed since you first contributed before you can withdraw penalty-free.)
While you can choose to take distributions at or after age 59½, traditional IRAs require people to start taking distributions—and paying taxes on them—starting at age 73 (this rises to age 75 in 2033). However, Roth IRA withdrawals aren’t required at all until after the death of the owner.
They’re not a lot, but you’ve got to start somewhere. For 2023, the combined contribution limit is $6,500 for traditional and Roth IRAs. So if you own one type of IRA, you can max out that account with $6,500 in contributions. If you own both, you can still only contribute $6,500 between them, but you can do so in whatever ratio you’d like.
Thanks to “catch-up” contributions, if you’re 50 or older, you can shovel an additional $1,000 into savings each year, for a total of $7,500 in 2023.
That said, you can only contribute up to the amount of earned income you’ll claim for a given year. So if you only earned $5,500, your contribution limit is $5,500, not $6,500.
2. Health Savings Accounts (HSA)
In terms of taxes, it’s tough to beat the triple tax benefits that a health savings account delivers. In fact, I recommend that anyone who qualifies for an HSA not only get one, but max it out every year and, if they can, invest in their HSA.
In a nutshell, here are the three tax benefits of HSAs:
- Those who have HSAs through their employers can make pre-tax contributions. Anyone self-employed who opens an HSA can deduct their contributions from their taxes.
- Earnings grow tax-free.
- At any age, you can take tax-free withdrawals if the money is used for qualified medical expenses.
Just know that if you take money out of your health savings account to pay for anything other than a medical expense, you’ll have to pay taxes on it. And if you’re younger than 65, you’d have to pay a 20% penalty as well, so that’s something to avoid. At age 65 and beyond, there is no penalty, no matter how you spend the money. You just pay ordinary income tax on anything you take out if used for non-medical expenses. You’re never required to start taking distributions.
To qualify for an HSA, you must be covered under a high-deductible health plan (HDHP), not have any other health coverage, not be enrolled in Medicare, and you can’t be claimed as a dependent on someone else’s tax return.
This type of account has so many tax advantages and can be used toward medical expenses at any age without penalty, making it an excellent addition to any retirement plan.
The 2023 contribution limits for an HSA are $3,850 for self-coverage and $7,750 for family coverage. For 2024, those limits rise to $4,150 and $8,300, respectively. And anyone 55 or older can contribute $1,000 more per year as a catch-up contribution.
3. Taxable Brokerage Accounts
Even if you don’t currently have a job, you can invest with a taxable brokerage account. There are no income limits. The only requirements for a taxable investment account are to be an adult (although there are ways to open a brokerage account for a child, too) and have a Social Security number or taxpayer identification number.
The downside of this type of account is that there is no tax benefit. For this reason, it’s best if you pair it with a tax-advantaged retirement account.
A perk of a taxable brokerage account is that you have complete control over what investments you choose, which isn’t the case with all retirement plans. Stocks, bonds, exchange-traded funds (ETFs), mutual funds, you name it. There are a vast variety of investments to choose from.
You can select very liquid investments and are allowed to sell and cash out at any time with no penalty, although it’s recommended to hold investments long term for growth and to pay less in taxes. Distributions are never required at any age.
There aren’t any contribution limits for a taxable brokerage account. You can invest as much as you want.
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How to Save (a Lot) for Retirement if You’re Self-Employed
If you’re self-employed, you have a few other options at your disposal.
4. Simplified Employee Pension IRA (SEP IRA)
Traditional and Roth IRAs are great, but they come with pretty meager contribution limits. If you work for yourself, like a freelancer, or own a business, one tax-advantaged way to put aside a bigger chunk of change for retirement is a simplified employee pension plan.
A SEP IRA, like a 401(k), is a tax-deferred retirement plan. You don’t have to pay taxes on any interest or capital gains until you make withdrawals.
It’s easy for employers and self-employed folks to set up a SEP IRA plan, and the administrative costs are low.
Aside from a few exceptions, withdrawals made before age 59½ face a 10% penalty, in addition to ordinary taxes. The account holder must start taking distributions by age 73. This age will rise to 75 starting in 2033.
Unlike a 401(k) plan, employees can’t contribute to a SEP IRA. Instead, employers establish these accounts on behalf of their employees and are the sole contributors. For 2023, employer contributions to a SEP IRA cannot be more than the lesser of the following:
- 25% of the employee’s compensation
For the self-employed, the same SEP contribution limits apply. However, your compensation is equal to your net earnings from self-employment, minus any tax deductions for contributions to your own SEP IRA and half of your self-employment tax.
This requires a special calculation, the effective result of which is that contributions by self-employed people to their own SEP IRAs can’t be more than 20% of the net earnings from their business.
Note: Unlike with IRAs and HSAs, there are no catch-up contributions for SEP IRAs.
- Account minimum: None
- Minimum initial deposit: $500
- Fees: No annual or opening fees; $100 closing fee
M1 Finance’s SEP IRA is a great set-it-and-forget-it option.
Like its other investment accounts, M1’s SEP IRA is based around Pies. Your portfolio is represented as a Pie (a pie chart); every stock and ETF you decide to buy becomes a slice of that pie—and because M1 supports fractional shares, you can add virtually any stock or ETF to your portfolio. From there, you set each holding’s “weight”—what percent of your Pie each slice should account for, so, say ETF X will always be 25% of your portfolio, while Stock X should always be just 5%.
After that, whenever you fund your M1 account, it will automatically invest your money based on these targets. You can take the automation even further by setting up recurring deposits into your M1 account.
5. Savings Incentive Match Plan for Employees IRA (SIMPLE IRA)
Employers with 100 or fewer employees with at least $5,000 in compensation in the preceding calendar year are allowed to create a SIMPLE IRA. These retirement accounts are funded with pre-tax income, and the earnings grow tax-deferred.
When you take distributions, you pay income taxes on that money. Any withdrawals taken before age 59½ also face an additional 10% tax. But beware: If you take out money within the first two years of participating in the plan, that additional tax rises to 25%.
Currently, you’re required to start taking distributions at age 73, but it will change to age 75 beginning in 2033.
SIMPLE IRA contribution limits are lower than a SEP IRA, but they’re still significant. For 2023, the maximum employee contribution from their salary to a SIMPLE IRA cannot be more than $15,500. For employees who participate in any other employer plan during the year and have elective salary deductions under those as well, the total amount they can contribute is limited to $22,500.
If the SIMPLE IRA plan allows catch-up contributions, the limit for people 50 and older would be an additional $3,500.
Typically, the employer is required to match each employee’s salary reduction contributions dollar-for-dollar up to 3%. The employer can decide to make a lower matching contribution, but it must still be at least 1% and for no more than two out of five years. Employees must be given reasonable notice about the lower match.
An exception to the 3% rule is made for employers who make nonelective contributions instead. Rather than matching contributions, an employer can make nonelective contributions of 2% of every eligible employee’s compensation.
These contributions must be made regardless of whether the employee makes salary reduction contributions. An employee’s salary of up to $330,000 is taken into account when figuring out the contribution limit.
6. Solo 401(k)s
A solo 401(k) is for business owners or self-employed folks with no employees or a single employee who is the spouse. Just like a standard 401(k), these are tax-deferred retirement accounts.
If you previously had a 401(k) and then become self-employed, you can roll over that money into your solo 401(k) to stay more organized.
When you take withdrawals during retirement, the money is taxed as ordinary income. Withdrawals made prior to age 59½ also face a 10% penalty. Starting at age 73, distributions are required. In 2033, the age will increase to 75.
They’re big. Essentially, for 2023 the annual solo 401(k) contribution limit is $66,000 or 100% of earned income, whichever is less. And if you’re 50 or older, you can add another $7,500 on top of that with a catch-up contribution.
But it’s a little more complicated than that. People who own a solo 401(k) can make contributions to their own account as both the employee and employer:
- As an employee, you can put away as much as 100% of your earned income—up to the annual contribution limit, which for 2023 is $22,500 for those younger than 50. With a catch-up contribution of $7,500, the limit for people 50 and older is $30,000.
- As an employer, you can also pump in employer non-elective contributions up to 25% of your compensation until you reach the combined total limit.
When you add up both types of contributions, the grand total cannot exceed $66,000 for 2023 for those younger than 50. If you’re 50 or older, the grand total is even grander: $73,500.
Related Questions on Building Your Retirement Savings Without a 401(k)
How can I save for retirement on my own?
There are many paths for how to save for retirement on your own, without the need for a 401(k). Providing you have earned income, an IRA is an excellent place to begin.
If you qualify for an HSA, it’s a great addition to retirement plans as it has several tax benefits, including tax-free withdrawals for any money spent on qualifying health care. For retirement options with higher contribution limits, consider a solo 401(k), SEP IRA, or SIMPLE IRA (if eligible). Taxable brokerage accounts have no limits.
What is the fastest way to save for retirement?
It’s much easier to save enough for retirement if you start when you’re young. However, many people need to do some catching up in later years.
To save for your retirement quickly, open one or more investment accounts. Preferably, these are tax-advantaged accounts. An HSA and IRA are great places to start. If you can afford to do so, max out these accounts and then open another investment account. Options vary depending on your work.
Many accounts offer catch-up contributions if you’re 50 or older. Make sure to contribute as much as possible for your age.
How do you retire if you don’t have a 401(k)?
Anyone who isn’t offered a 401(k) through an employer should ask what other retirement account options are offered.
If your job offers no type of employer-sponsored account, there are still retirement account options available to you, such as an IRA or HSA. You can also invest through a standard brokerage account.
Self-employed workers and small-business owners have additional options. Depending on whether or not they have employees and, if so, how many, a solo 401(k), SEP IRA, and SIMPLE IRA are more retirement account options.
Is a 401(k) Really Important?
It’s extremely important to save toward retirement, but a 401(k) isn’t the only way to do so. If your employer offers a 401(k), always contribute at least up to the employer match amount.
Workers who aren’t offered a 401(k), whether because they are part-time, self-employed, or any other reason, should open up other accounts to invest for retirement.