How to Save for Retirement Without a 401(k)

The 401(k) is perhaps the best-known retirement fund. The money you put into these employer-sponsored accounts is tax-deductible, which reduces your taxable income today. Your funds then grow tax-free, and you might get an employer match to boot. But where does that leave folks who don’t have access to a 401(k)? Maybe your employer doesn’t offer one, or you’re self-employed. No matter the reason, it’s still possible to save for retirement without a 401(k). Here’s how.

Traditional Individual Retirement Account (IRA)

A traditional IRA is a retirement account you can open and fund yourself through a bank, credit union, brokerage firm, or mutual fund provider. It mirrors a 401(k) in that:

• Your contributions may be tax-deductible.
• Your money will grow on a tax-deferred basis.
• You’ll be taxed on distributions you take in retirement.
• Withdrawing funds prior to age 59½ typically results in a 10% early withdrawal penalty.
• You must start taking required minimum distributions (RMDs) at age 73. (The RMD age will jump to 75 in 2033.)

Contribution Limits

In 2023, you can contribute up to $6,500 across all your IRAs. Those who are 50 and older can kick in an extra $1,000.

Roth IRA

Unlike a 401(k) or traditional IRA, a Roth IRA is funded with after-tax dollars. As a result, you can withdraw your contributions at any time, without penalty (as long as you’ve had the account for at least five years). However, you may be taxed on Roth IRA gains if you withdraw money before you’re 59½. Here are some other important Roth IRA details to consider:

• Contributions are not tax-deductible.
• RMDs are not required (unless it’s an inherited Roth IRA).
• You cannot contribute to a Roth IRA if you’re a married couple filing jointly and your modified adjusted gross income exceeds $228,000. The income limit is $153,000 for single filers.

Contribution Limits

The Roth IRA contribution limit includes money you put into other IRAs in the same year. In 2023, the cap is $6,500 ($7,500 if you’re 50 or older).

Solo 401(k)

Solo 401(k)s are designed for business owners who don’t have employees. They have the same requirements and rules as regular 401(k)s. Since you are your own employee, you can make tax-deductible contributions—and as the employer, you can also contribute up to a certain percentage of your total compensation. That can help supercharge your retirement savings. Like a traditional 401(k):

• You’ll be taxed on retirement withdrawals.
• You’ll likely encounter a 10% penalty if you tap your funds before age 59½.
• RMDs begin at age 73.
• You can open a solo 401(k) through an investment brokerage.

Contribution Limits

As the employee: You can contribute up to $22,500 in 2023.

As the employer: You can kick in up to 25% of your compensation. For those who are self-employed and whose business is not structured as a corporation, your earned income is equal to your net earnings minus half of your self-employment tax and contributions made for yourself.

All together, your total contributions for 2023 cannot exceed $66,000. Those who are 50 and older can contribute an extra $7,500.

Brokerage Account

A brokerage account is an investment account that can help you save for all types of financial goals. It doesn’t offer the tax benefits you’ll get with a 401(k) or IRA, but it can be a nice addition to those accounts. You can open one through an investment brokerage, then fund it and purchase securities as you please. That can include individual stocks, exchange-traded funds (ETFs), mutual funds, and more. Below are some important things to think about:

• You’ll probably be taxed on earnings during the year they’re realized—not when the money is withdrawn. Stock dividends, investment gains, and interest all count as taxable income, but the tax rate you pay will depend on the type of earnings.
• RMDs are not required.
• There are no early withdrawal penalties.

Contribution Limits

Brokerage accounts have no contribution limits.

Health Savings Account (HSA)

While it’s technically not a retirement account, an HSA can still help you build your nest egg if you’re eligible to contribute. One may be available through your employer, or you can open one yourself through an HSA provider. It allows you to set aside pretax dollars that you can draw on, tax-free, to cover qualified medical expenses. You may also be able to invest your balance—and earn tax-free interest on your earnings.

Another benefit of an HSA is that once you turn 65, you can use the account for anything you like. That includes retirement income. However, you will be taxed on withdrawals that aren’t used for qualified health care costs. Here are some other HSA details to keep in mind:

• You must be enrolled in a high-deductible health plan (HDHP) to open an HSA. In 2023, that’s an individual health plan that has a minimum annual deductible of $1,550 (or $3,000 for family coverage).
• RMDs do not apply.
• Withdrawing HSA funds for non-qualified medical expenses before age 65 will trigger an additional 20% penalty.

Contribution Limits

If you have an HDHP and self-only coverage, you can contribute up to $3,850 in 2023. The contribution limit is $7,750 for family coverage.

How to Save More for Retirement Without a 401(k)

Automate Your Contributions

Once you decide on a monthly retirement contribution that works for your budget, make it automatic. Setting up recurring transfers from your checking account can help you stay on top of your savings goals.

Gradually Increase Your Contributions

One rule of thumb is to save 15% of your income for retirement when you’re in your 20s and 30s—then dial it up to 20% in your 40s and beyond. Start where you are and aim to increase your contributions every year.

Avoid Dipping Into Your Retirement Funds

Depending on the type of account, withdrawing funds before retirement could trigger a penalty. Doing so also depletes your savings and takes money out of the stock market. That diminishes the effects of compound interest.

The Bottom Line

A traditional 401(k) can be a great way to save for retirement, but they aren’t available to everyone. If you don’t have one through your job, you can lean on other types of investment accounts to build your nest egg. What matters most is saving early and often, even if you’re getting a late start.

Be sure to prioritize your credit along the way. Free credit monitoring with Experian makes it easy to keep up with what’s on your credit report.

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