How To Save for Retirement Without a 401(k)

Only one-third of Americans have access to an employer-sponsored 401(k). As for the remaining two-thirds? They need to find their own ways to save for retirement.   

If you work at a small business, in the service industry, or as part of the gig economy, chances are you’re one of those people without access to a 401(k). 

Don’t worry. While it’s unfortunate you don’t have that option to lean on, you can still save for a secure retirement without an employer-sponsored plan. 

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Roth IRA

The first stop is a Roth IRA, an individual retirement account. 

The premise is quite simple: Contribute annually up to $7,000* (for 2024) post-tax into the account, let it grow tax-free for a few decades, and withdraw the money after age 59½… tax-free! 

Average returns have historically been between 7% and 10%. For a 25-year-old, putting $7,000 per year into a Roth IRA and getting 7% growth equates to roughly $1.4 million at age 65! 

And that’s not counting the annual inflation adjustment the IRS puts on the contribution limits. 

Oh, and once you turn 50, you can contribute $8,000* per year.

That’s a good deal, but there are two catches: 

1. If you don’t have any earned income, you can’t contribute (we’ll talk about spousal IRAs in a minute).
2. If you have a modified adjusted gross income of more than $146,000* ($230,000* for couples), you can’t contribute to a Roth IRA. 

How to open a Roth IRA

You can open your Roth IRA with a traditional brokerage firm like Fidelity or Vanguard or with an online broker like Webull or Robinhood.

Some brokers offer robo-advisor services, too, so you can be fairly hands-off with your investments after you set up your account.  

Traditional IRA

If you’re a high-earner, you’re not left out of the IRA game entirely. 

Anyone with earned income can contribute up to $7,000* pre-tax into a traditional IRA, get tax-deferred growth, and then withdraw those funds as ordinary income after age 59½. 

Your tax deduction during the year of contribution will depend on several factors, like: 

• Your marital status
• Your tax filing status
• Your income level
• Whether you or your spouse are covered by an employer-sponsored plan at work

A significant factor is that traditional IRAs are subject to required minimum distributions (RMD). 

At age 73 (age 75 after 2033), that tax-deferred growth comes to a halt, and you’re required to take distributions as ordinary income and pay taxes on it. The government has allowed you years of tax deferrals, and now want their cut. 

Your RMD is calculated annually by your account balance divided by a life expectancy factor published by the IRS. 

Failure to take your full RMD will result in a 25% tax on the money you didn't withdraw.

READ MORE: Roth IRA vs. Traditional IRA: What’s the Difference?

How to open a traditional IRA

Like with Roth IRAs, you can open a traditional IRA through any brokerage firm, and opt to be as active or passive as you like. 

If you’re new to investing and unsure where to start, check out Erika’s 3D Money course, which includes video lessons, worksheets, trackers, and calculators to help you budget, fix your credit, pay off debt, and start investing.

Spousal IRA

If you don’t have an income but your spouse does and you file as “married filing jointly,” you’re in luck for an IRA contribution. 

Your working spouse can contribute to your IRA on your behalf and you reap all the benefits as if you earned the money yourself. 

Your spouse must have enough earned income to cover both their own and spousal contributions — that’s a combined $14,000* if you’re both under 50. 

Both Roth and traditional IRAs can receive spousal contributions.

It’s also important to note that all IRAs are individual accounts, not joint. Simply funding a spousal contribution does not confer ownership to the person making the contribution. The account is wholly owned and controlled by the non-working spouse. 

How to open a spousal IRA

You can open a spousal IRA with any broker that offers traditional and/or Roth IRAs.

Like with any other IRA, you’ll fund your account, then choose your investments and how hands-on you want to be. 

HSA

A health savings account (HSA) is something of an unconventional approach to saving for retirement. 

While most HSA owners use the account as a tax-free clearinghouse for medical expenses, savvy individuals use it to supercharge their retirement savings.

HSA contributions go in pre-tax, grow tax-free, and can be withdrawn tax-free to reimburse medical expenses any time after the account is established. 

There is no time limit on when that reimbursement must occur. This means you can fund your HSA for years, pay your medical expenses out of pocket, and save your receipts for future reimbursement, perhaps decades later.

READ MORE: How to Use Your HSA to Unlock Preventative Care Savings

Most of us have more medical expenses as we age. If you’re younger and healthier, you can invest in your HSA for years and have a substantial tax-free bucket of money for your retirement years, when medical expenses will typically be highest. 

Withdrawals for non-medical expenses before age 65 will incur taxes as ordinary income plus a 20% penalty. At age 65 or older, HSA withdrawals for non-medical expenses are simply taxed as ordinary income, exactly like a traditional IRA.

Individual workers can contribute $4,150* annually or $8,300* for families. If you’re age 55 or older, you can contribute another $1,000. 

How to open an HSA

You are only eligible for an HSA if you’re:

• Covered under a high-deductible health plan
• Not co-insured by a spouse’s health plan
• Not enrolled in Medicare or Tricare
• Not claimed as a dependent on someone else's tax return
• Disqualified by alternative medical savings accounts such as a Flexible Spending Account or Health Reimbursement Account

Check with your health insurance company if they partner with HSA financial institutions, or ask your bank if they offer HSAs that suit your needs.

Taxable Brokerage Account

Often overlooked for retirement planning, a plain taxable brokerage account can be a powerful tool, especially if you’re interested in early retirement. 

Tax-advantaged accounts like IRAs come with age restrictions for withdrawals or income limits for participation. But a taxable account has no age restriction for withdrawals, and no income limits or caps for contributions.

All contributions to a brokerage account are after-tax. Dividends and interest payments are taxed annually, and investments are subject to taxable gains when withdrawn or traded. 

Trading inside a taxable account is a taxable event, known as “turnover.” But your taxation can be moderated by investment selection. 

For instance, index funds and exchange-traded funds (ETFs) are generally tax-efficient with low turnover that reduces your annual tax liability. 

For assets held more than one year, investment gains are subject to a long-term capital gains tax that is quite favorable when compared to ordinary income tax rates.

Investments held under a year are subject to short-term rates, which match your ordinary income tax bracket. 

How to open a taxable brokerage account

You can open a taxable account with any brokerage firm, including online brokers like Webull. You can usually do it online within a few minutes.

You’ll then fund your account and choose your investments, including whether you want to be active or more passive with a robo-advisor.

READ MORE: How Much Time Does It Really Take to Manage Your Investments?

FAQs

Can a self-employed person have a 401(k)?

If you’re self-employed with no employees and have an IRS employer identification number (EIN), you likely qualify for a solo 401(k). 

You can contribute up to the max of $23,000* as the employee and up to 25% of your compensation as the employer to a combined maximum of $69,000*.

While the IRS doesn’t allow you to have a solo 401(k) if you have any employees, there is one exception: your spouse. Married couples earning from the same business can each contribute to a solo 401k, effectively doubling your limits as a married couple.

What if I have no money saved at retirement?

If you’re near retirement and have little to no money saved, you need to take serious stock of your situation. 

Roughly half of Americans aged 55-65 have nothing saved for retirement, so your predicament is by no means unusual. Visit SSA.gov to get an up-to-date estimate of your monthly benefit, particularly your delayed benefit at age 70. 

You will also need to account for other sources of income, such as pensions or rental income and compare your monthly spending to your monthly income. 

If there’s a shortfall, you may need to make it up through part-time work or by reducing your expenses. Consider what other assets you have, like real estate that could be sold or reverse mortgaged.

TL;DR: What Should I Do If I Don’t Have a 401(k)?

Even if you don’t have a 401(k), you can still save for retirement. Tax-advantaged IRAs are the most popular option, but you can also consider HSAs and taxable brokerage accounts.

You’ll need to be more proactive than you would with an employer-sponsored 401(k), but your retirement savings can still be fairly set-it-and-forget-it. Many brokerages, such as Fidelity, Vanguard, and Webull, offer robo-advisor services that can manage your investments for you. 

The important thing is to start now, so that your account has time to grow and you can retire comfortably.

* Contribution and income limits for 2024. Limits adjust annually for inflation.

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