When Your Company Does Not Offer a 401(k): What Are Your Options?

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Saving money for retirement is necessary if you want to have a comfortable one. A downside of this is that not all employers offer the most popular tool for retirement savings—the 401(k). The good news is that several other tools are available to help you save for retirement.

Here are some of the best options available.

The Individual Retirement Account (IRA)

You can start putting your retirement contributions into an IRA. Many banks and other financial institutions offer these retirement savings plans. Automatic payments can be subtracted from your paycheck and put into the account each month. All contributions are tax-deductible, but you will pay taxes in retirement when you withdraw the money.

All contributions to a traditional IRA are tax-deductible, which lets you subtract it from your taxable income each year. NerdWallet says that you should decide first if you want to manage your investments in the account or use a robo-adviser. Robo-advised accounts have fewer fees, but you still must select your risk tolerances and preferences.

IRAs, like most retirement savings accounts, have contribution limits. The limit for 2024 is $7,000, but if you are 50 or older, you can contribute another $1,000. All contributions up to the limit are tax-deductible in the year you make them.

A Roth IRA

Another retirement savings account nearly identical to the traditional IRA is the Roth IRA. It differs from the traditional one in that it has income limits on who can contribute to it and get the full deduction. A married couple filing jointly must earn less than $240,000 in 2024. Singles must earn less than $161,000, and married filing separately must earn less than $10,000 to get the deduction.

If you choose to get a Roth IRA, there are two major differences from a traditional IRA that you should know about. The first is that your contributions are not tax-deductible. Paying taxes on the money upfront enables you to make all withdrawals tax-free during retirement. The second difference is that you will not have to get the required minimum distributions from the account when you turn 73. You can keep the money in the account as long as you want.

The Health Savings Account (HSA)

A health savings account is another tool available to save money for retirement. Before getting one, you need to have a high-deductible health plan (HDHP) and not have other coverage. The high-deductible plan enables your premiums to be lower than traditional health plans.

Like traditional retirement plans, all contributions made to an HSA are tax-deductible in the year you make them. GoodRx says that you cannot deduct amounts put into the plan if you still have individual coverage.

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A high-deductible health plan must have a minimum deductible of $1,600 to qualify and $3,200 for a family. The contribution limit for individual coverage in 2024 is $4,150; for a family, it is $8,050. The Internal Revenue Service (IRS) says the maximum deductible for single coverage is $8,050 and $16,100 for a family. If you are over 55, you can contribute an extra $1,000 annually.

An HSA may be one of the most tax-efficient ways to save money for retirement—even though the contribution limits are low. All money used for qualified health costs is exempt from taxes and penalties. You can withdraw money in retirement for any purpose without penalties, but you must pay taxes on them.

The Self-Employed Also Have Options

The Solo 401(k)

If you are self-employed, you can take advantage of a solo 401(k). It is very similar to a traditional 401(k). You can contribute many times more in a solo 401(k) than an IRA. The limit for 2024 is $23,000, but if you are 50 or older, you can add another $7,500.

As an employer and employee of your own company, you can contribute even more. Solo 401(k) owners can also make company contributions equal to 20 percent (or 25 percent) of their net income from your business. Combined with your employee contributions, you can add up to $76,500 each year to your retirement account.

A Roth solo 401(k) is also available. You contribute after-tax money, which enables you to withdraw money later without taxes, and there are no required minimum withdrawals.

A SEP IRA

A Simplified Employee Pension IRA, or SEP IRA, is available to self-employed individuals and those with income from side jobs. Bankrate says it offers many of the same features of a traditional IRA, except its contribution limits are much higher.

The IRS says contributions can be made up to $69,000 in 2024, or up to 25 percent of the employee’s compensation—whichever is less. Catch-up contributions are not permitted. Annual contribution amounts are determined by the employer and only made by the employer. An employer must make equal contributions to all qualified employees.

Calculating How Much You Will Need

Before choosing what method to use for retirement savings, you should take some time to find out how much you will need. People are living longer now, and inflation is always a factor you must consider. A retirement calculator can help you get more realistic numbers.

When you need to find an alternate way to save for retirement, you not only need to consider the options—but dig a little deeper and find out which lenders offer lower fees. You will be able to save more money when you do.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.