How to Save for Retirement Without a 401(K)

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When you want to save for retirement but find out that your employer does not offer a 401(k), it can be disappointing. The good news is that there are 401(k) alternatives where you can put your retirement money and build considerable interest.

Go for a Solo 401(K)

Apart from an employer’s 401(k), probably the best way to save for retirement would be to create a solo 401(k)—also called a one-participant 401(k). The only requirement is you must be a business owner without any employees. More good news is that your spouse does not count as an employee.

MySolo401k mentions that money you put into a solo 401(k) account must be self-earned. It can come from a limited liability company, S-corporation, C-corporation, sole proprietorship, or limited partnership, but it must be from “earned income” that you generate.

You can make contributions to a solo 401(k) even if you are working a full-time job. Money earned from a side gig or part-time self-employment (if you work alone) can be put into this kind of account. You can also have a 401(k) through your full-time employer, and a solo 401(k), but you cannot exceed the maximum allowable contributions for them.

Contribution limits for 2023 into a solo 401(k) are $22,500—or $30,000 if you are 50 or older. RamseySolutions says you can contribute as much as 25 percent of your income, but you cannot exceed $66,000 annually. A solo 401(k) is an excellent option because you can contribute much more money into the account than possible in an IRA.

When choosing your self-employed 401(k), you can get either a traditional 401(k) or a Roth 401(k). A traditional 401(k) takes contributions pretax, before paying taxes on the money, but you will pay taxes on withdrawals. It may be the better choice if you think that your income will be lower during retirement. It will also enable you to have a bigger paycheck each month.

A Roth 401(k) takes contributions aftertax, which means that you pay taxes on the money before contributing, and withdrawals are tax-free. This method reduces your monthly income now, but will give you larger withdrawals during retirement.

An Individual Retirement Account (IRA)

Another alternative to a 401(k) is the IRA. You can contribute to a traditional IRA with pretax dollars. It allows you to deduct the amount contributed from your income. You will pay taxes when you withdraw the money from the account.

BankRate says that one of the benefits of an IRA is that it gives you “an almost limitless number of investments” to choose from. You will need to decide how to invest the money, or you can choose to have someone do it for you.

A Roth IRA

The Roth IRA is one step above a traditional IRA because it gives you some nice additional benefits. You will pay tax on all contribution money upfront, but you will not pay any when you withdraw the money after age 59 1/2. Investopedia says you must have had the account for five years before doing this.

Another nice benefit is that you can withdraw money from the account without any penalties—which you cannot do with a traditional IRA. BankRate says you can take out all contribution money without penalties, but you cannot take out money earned on the account.

One more benefit is that you are not required to take required minimum distributions (RMDs) when you turn 72. You also can continue to make contributions after reaching that age.

You can contribute up to $6,500 in 2023. If you are over 50, you can also make catch-up contributions of an additional $1,000 per year—for a total of $7,500.

A Roth IRA has some eligibility requirements based on your income. If you are married and file jointly, you can contribute to a Roth IRA if your modified adjusted gross income is less than $218,000 in 2023. Single people can make contributions if they make less than $138,000.

Spousal IRAs

If you are married and have a spouse that is not working, you can open a spousal IRA. RanseySolutions says that this type of IRA enables you to save twice as much money—which is beneficial because IRAs offer much smaller limits than 401ks.

Simplified Employee Pension IRA (SEP IRA)

The SEP IRA is a retirement savings plan that enables owners of small businesses to help contribute to their employee’s retirement. Self-employed people can also use this plan.

The primary advantage is that it gives you a much higher contribution limit than any other IRA. Like a solo 401(k), you can contribute up to 25 percent of your income—or a maximum of $66,000.

An important thing to know about this kind of account is that you must give your employees the same percentage of your salary for their contributions. If you contribute 10 percent of your salary, you must also contribute 10 percent of their salaries to their funds.

A Taxable Brokerage Account

Fool mentions another option. You can also make contributions to a taxable brokerage account. If you get dividends, you will need to pay taxes each year. If you invest in stocks that do not pay dividends, you will not pay any taxes until you sell stock and see a profit.

These are just some ways you can save for retirement—without an employer’s 401(k). You can use one or more of the above accounts to build a secure and comfortable retirement. It is necessary to start as early as possible so that your money has time to earn more.

The Epoch Times Copyright © 2022 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.