How To Save For Retirement Without A 401(k)

How To Save For Retirement Without A 401(k)

401(k)s are undoubtedly the most important retirement vehicles available today, given that pensions are on the decline and the future of Social Security doesn’t look bright. What makes 401(k)s super important is an alarming number of Americans have little to nothing saved for retirement individually.

According to this CNBC article, nearly 42% of Americans could retire broke and on the other hand this article from MSN, Even 75% of Americans in the best 401(k) plans won’t have enough to retire only goes to show how bad things can get, even for those who have a 401(k).

According to the statistics offered from PEW research, it appears that about 1/3 of Americans don’t have access to a defined benefit plan like a 401(k). That begs the question, “How should you save for retirement without a 401(k)?”

Retirement Plan Access
Courtesy – Retirement Plan Access Data

What Is Good About 401(k) Plans?

I had written earlier – how to can evaluate a 401(k) plan offered by your employer. Let’s see why 401(k) plans are so good.

  1. Contributions to your 401(k) are made “pre-tax,” which means they are deducted from your taxable income for that year.
  2. These savings grow tax deferred until you withdraw them sometime after you turn 59.5 years old.
  3. It is automatically deducted from your paycheck and hence you don’t even get to see the money. It’s good since most Americans don’t have anything saved for retirement.
  4. The employer match offered by some companies is the icing on the cake. It’s free money!

How to Save for Retirement Without a 401(k)

Not having access to 401(k) doesn’t mean you are out of luck. You can still save for retirement with plenty of other vehicles designed for retirement savings. Let’s take a look at some of the ways you can save for retirement without a 401(k).

1. Fund a Traditional IRA

A traditional IRA is an individual retirement account that offers tax advantages to savers. It is typically referred to as “Traditional” IRA in order to differentiate it from a Roth IRA.


  1. You must have received earnings from work during the year and be under age 70 ½. 
  2. The IRA contribution limit for 2019 is $6,000 or $7,000 if you’re 50 or older. You can use an IRA to save even if you already participate in a workplace retirement plan, such as a 401(k).
  3. A contribution made towards a traditional IRA can be eligible for a tax deduction in the year the contribution was made. But if you are not eligible to get a tax deduction, it is still possible to fund a traditional IRA. So don’t let this come in your way of funding a traditional IRA.
  4. Investments grow tax-deferred within this type of IRA, which means you won’t be taxed on gains until you withdraw them.
  5. Retirement distributions are taxed as ordinary income.
  6. Unless they meet certain conditions, early withdrawals may be taxed as income and assessed a 10% penalty.
  7. If an individual meets the requirements for a Traditional Deductible IRA, their non-working spouse can contribute to a Traditional IRA, as long as the combined contributions do not exceed their earnings or IRA limits. Refer to the 2019 Traditional IRA deduction limits table below.
  8. IRAs also give you a greater variety of investment options than 401(k) plans, and you can shop around for brokerage firms with funds that have low-cost investment options. I personally invest with Vanguard and I love their low-cost index fund options. You may also consider other brokerage firms like Fidelity or Charles Schwab which offer low-cost funds as well.

2. Fund a Roth IRA

A Roth IRA is a special retirement account that you fund with post-tax income. Unlike Traditional IRAs, you can’t deduct your contributions on your income taxes. Once you have done this, all future withdrawals that follow Roth IRA regulations are tax-free. If you are in your 20s and in a lower tax bracket, go fund your Roth IRA. This could be your ticket to the millionaire club!


  1. The IRA contribution limit for 2019 is $6,000 or $7,000 if you’re 50 or older.
  2. There is no up-front tax deduction for Roth IRA contributions, as there is with a Traditional IRA.
  3. Roth IRAs make the most sense if you expect your tax rate to be higher during retirement than your current rate. That makes Roth IRAs ideal savings vehicles for young, lower-income workers who will benefit from decades of tax-free, compounded growth.
  4. You can tap your contributions (but not your earnings on those contributions) at any time, tax-free and penalty-free. There are some exceptions where you might be able to withdraw money from a Roth IRA without being taxed. Make sure you meet the guidelines for early withdrawal exemptions before you make that move.
  5. Unlike a Traditional IRA where income limits only decide if you get a tax deduction or not, Roth IRAs have an income limit that restricts contribution to the accounts itself. So if you are high-income earner and still want to fund a Roth IRA, check out the step by step guide on how to do a Backdoor Roth IRA contribution.

3. Fund a SEP IRA

A SEP (Simplified Employee Pension) IRA is a type of Traditional IRA for self-employed individuals or small business owners. In this type of retirement plan, employees of the business cannot contribute to the plan, only the employer can.

Related:  Why You Should Not Rollover Your 401(K) Into A Traditional IRA


  1. SEP IRAs can be set up to contribute up to 25% of salary up to an annual maximum. The maximum contributions are $56,000 in 2019.
  2. Any business owner with one or more employees or anyone with freelance income can open a SEP IRA.
  3. If the self-employed person does have employees, all employees must receive the same benefits under a SEP plan.
  4. Contributions, which are tax-deductible for the business or individual, go into a traditional IRA held in the employee’s name.
  5. SEP IRAs are also a type of IRA, funds can be invested the same way as most other IRAs.
  6. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal.
  7. A small business employer can choose to introduce some eligibility criteria for the employees to participate in a SEP IRA plan. You can choose to relax them as well.
    • An employee must be 21 years or above
    • Must have earned total compensation of $600 or more
    • Must have been employed for at least 3 years of the last years.
  8. Contributions to a SEP IRA is not mandatory every single year. But if you choose to contribute to a SEP IRA for a particular year, you must contribute to every single eligible employee’s account as well. So if your business fluctuates in profits, it can limit your own retirement contributions.
  9. A SEP IRA is ideal for a single employee small business or one which has fewer than 100 employees. Since the administrative costs are very low, it can be easy to set up and maintain. You can open a SEP IRA with a bank or any brokerage firm. Since the contributions to SEP IRA are not mandatory every single year, it can help you manage those down years.
  10. SEP IRAs don’t require employer tax filings; employee notification for employer’s contribution, if made.

4. Fund a SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan For Employees) IRA is an employer-sponsored retirement plan offered within small businesses that have 100 or fewer employees. A SIMPLE IRA is not just for small businesses but is suitable for business of any scale.


  1. Small businesses may favor SIMPLE IRAs because they are a less expensive and less complicated alternative to a 401(k) plan.
  2. A SIMPLE IRA has two ways in which it can be set up:
    • An employer can match up to 3% of the employee’s annual contribution
    • An employer can set up a non-elective 2% contribution to each employee’s salaries without requiring an employee contribution.
  3. The SIMPLE IRA allows eligible employees to contribute part of their pretax compensation to the plan. This means the tax on the money is deferred until it is distributed. This contribution is called an elective-deferral (amounts that you ask your employer to deduct from your pay and contribute on your behalf to an employer-sponsored retirement plan) or salary-reduction contribution.
  4. Unlike SEP IRA where the employer has full control of funding your retirement account, a SIMPLE IRA funding is shared between the employer and employee, employees have some degree of control over how much and when (the years in which) their SIMPLE IRAs may be funded.
  5. For 2019, Employers may contribute up to 25% of compensation up to a maximum of $56,000. Total employer/employee contributions cannot exceed $56,000. Employees can contribute up to $19,000 in salary deferrals; $25,000 if age 50 or older.
  6. SIMPLE IRA requires annual form 5500 filing after plan assets exceed $250,000; periodic plan amendments for legislative changes.
  7. Unlike 401(k)s, any employer-matched funds are vested immediately, so employees get to keep them even if they quit the next day.
Related:  How To Evaluate A 401(k) Plan

5. Fund a Taxable Investment Account

I would personally arrive at this option after I have exhausted the options I have listed above. Once you’ve reached the annual maximum contribution for your IRA, you can fund a regular investment account (taxable account) where you will invest your money stocks, mutual funds, bonds, etc. While these accounts are not tax-deferred there are ways to minimize these taxes.


  1. No limits on income to contribute to taxable accounts.
  2. You can only contribute after-tax money into a taxable account. Hence no option to leverage tax breaks.
  3. You can free to choose any kinds of investments of your choice like individual stocks, ETFs, Mutual Funds, Bonds, etc.
  4. Since you are free to choose investments of your choice, you can opt for low-cost investment options. I personally prefer to invest in index funds with low expense ratios.
  5. Since these are taxable accounts, you might want to consider the tax implications of selling an investment held in this account. It might have a tax liability on the gains. I would encourage you to explore Tax Loss Harvesting to minimize your tax liability.
  6. If you are invested in an actively managed fund, watch out for any distributions that happen during a year which can trigger unwanted tax liabilities. Hence I would highly encourage you to pick funds which usually have a very low turn over, which ensures the underlying securities are not frequently traded.
  7. If you are aiming for FIRE, investing in a taxable account should be an integral part of your plan since it has no early withdrawal penalties.

6. Fund a Tax-Sheltered Annuity (TSA plan)

tax-deferred annuity (TDA), more frequently referred to as a tax-sheltered annuity (TSA) plan or a 403(b) retirement plan, is a retirement saving plan available to employees of certain public education organizations, non-profit organizations, cooperative hospital service organizations, and self-employed ministers.

A TSA plan can be set up in one of the following ways.

  1. The employer makes contributions to the plan through a salary-reduction agreement.
  2. The employee makes contributions to the plan.
  3. The employee makes contributions to the plan and the employer makes a matching contribution.


  1. You can contribute up to $19,000 in 2019 and if you are age 50 or over, the catch-up contribution limit will stay the same at $6,000 as the previous year.
  2. Unlike in 401(k) plans, TDA plan participants are not allowed to invest in individual stocks. Investment options specific to TDA plans include annuity and variable annuity contracts with insurance companies, custodial accounts consisting of mutual funds, as well as retirement income accounts for churches.
  3. They are available with a fixed interest rate, an indexed interest rate (based on an index) or a variable rate (tied to market performance).
  4. Funds deposited into an annuity grow tax-deferred, but they are taxable once funds are distributed during retirement years.
  5. In addition to tax deferral, annuities can provide a guaranteed income stream to the account holder for a certain number of years or for a lifetime. 
  6. Annuities are not appropriate for every investor, and annuities are only backed by the claims-paying ability of the issuing insurance company. Investment performance within this type of vehicle is not guaranteed.
  7. There are commission-based annuities that are typically more expensive than other collective equity securities such as mutual funds and ETFs. It is not unusual to find annuities with total annual costs in excess of 4% per year. It’s not without a reason that these annuities get a bad rep among its consumers. Most of them might have been sold by clever sales tactics by insurance agents.

I hope this really helps you explore your options to save for retirement. If you know of any other interesting ways to save for retirement, share them in the comments.

7 thoughts on “How To Save For Retirement Without A 401(k)”

  1. Good article on the non-401k options for investing for retirement. Even though it’s not directly for retirement I also like to consider the HSA (when available through HDHPs) a pseudo-retirement plan option as well. Although, those without 401k options may not be on HDHP w/ HSAs either.

  2. @Accessible Investor,

    I totally agree with you on the HSA option. I personally use it. Since health care is an integral part of the retirement expenses, I would definitely consider any dedicated savings towards that as retirement savings. I wasn’t aware that HDHP wasn’t offered to those who without a 401(k). But it’s an excellent option.

  3. Actually, depending on your income, Roth IRAs may be tax deductible via the saver’s credit. But yes by and large you won’t get a deduction for them.

    I finally opened and am funding a SEP-IRA for my one-employee business. I wish I had started long before this, but better late than never, right? The higher limit (compared to an IRA/Roth IRA) will help me make up a little for lost time, which is something. But of course I’m also funding my Roth IRA too.

  4. Wow, this was a fantastic article. So detailed! I have a post on my site that compares Canadian and US accounts. This article would’ve been really helpful when I was writing it! I’ll keep it as reference to double-check my article when I have time. Great work! 👍

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