How to Save for Retirement if Your Company Doesn’t Offer a 401(k)

Even if your employer doesn’t offer a 401(k) plan, that shouldn’t stop you from making the most of your retirement savings.

You have other tax-advantaged options for saving for the future, including individual retirement accounts, Roth IRAs, or health savings accounts, all of which can help your money grow. These accounts also offer tax advantages, allowing you to maximize returns.

The only problem is that these accounts may have income-related eligibility limits, as well as annual contribution limits that are not as high as those of the 401(k), which allow a single person to contribute up to $23,000 in 2024. However, only about 11% of Americans max out their 401(k) contributions.

Here’s a look at three 401(k) alternatives for retirement savings commonly recommended by certified financial planners.

Offered by banks and brokerages, traditional IRAs are a good alternative to 401(k)s as your contributions are tax deductible and there is no predetermined income limit on whether you can contribute to an account.

However, there are limits on contributions to all of your IRA accounts. In 2024, people under 50 can contribute up to $7,000. An annual catch-up contribution of $1,000 is offered to those aged 50 and over.

If you don’t have an employer-sponsored retirement plan like a 401(k), all of these contributions are tax deductible. But here’s a twist: If your spouse has a 401(k), the tax deductibility of your annual contributions phases out between a modified adjusted gross income of $230,000 and $240,000 for married couples filing jointly in 2024.

“If your employer doesn’t offer a 401(k) plan, you can contribute to a traditional IRA and get a tax deduction in most cases,” says Justin Rucci, a certified financial planner in Newport Beach, California. “The contribution limit is lower than a 401(k), but it’s still a way to get tax-advantaged dollars for retirement.”

With IRAs, you can begin withdrawing funds without a 10% penalty after you reach age 59½. You must also take minimum distributions – essentially mandatory withdrawals – at age 73.

Like 401(k)s, IRA withdrawals are taxed as ordinary income at the time of withdrawal. The benefit of tax-deferred accounts like 401(k)s and IRAs is that you get an immediate tax break by deducting contributions each year. Another benefit is that you could be in a lower income bracket in retirement, maximizing your tax savings.

Roth IRAs are the opposite of traditional IRAs in that you pay taxes upfront on contributions. Contribution limits are the same as traditional IRAs, but all future withdrawals are tax-free, which is ideal if you expect tax rates to increase when you retire.

Another advantage is that contributions – as opposed to total earnings – can be withdrawn at any time without penalty. And unlike traditional IRAs, you are not required to take minimum distributions at any time.

“The real benefit of a Roth IRA is its tax-free growth and withdrawals in retirement,” says Alyson Basso, a certified financial planner in Middleton, Massachusetts. The absence of mandatory minimum distributions also provides “flexibility in retirement planning and potential estate planning benefits,” she says.

The downside to Roth IRAs is that they come with income restrictions. For 2024, your eligible contributions will gradually decrease to $0 based on adjusted gross income modified between:

• $146,000 and $161,000 for single filers
• $230,000 and $240,000 for married couples filing jointly
• From $0 to $10,000 for filing separately married, if you lived together at any time during the year (otherwise you are treated as a single filer)

Provided you don’t disqualify yourself from contributing to a Roth IRA by earning too much money, they offer more flexibility than a traditional IRA in terms of withdrawals.

Health savings accounts are offered by many employers and banks, providing a tax-deferred way to save for medical expenses. But it’s also a good way to save for retirement.

Indeed, the funds are generally investable and grow tax-free, without compulsory withdrawals.

To be eligible, you must be enrolled in a high-deductible health plan, which for 2024 requires a minimum deductible of $1,600 for individuals or $3,200 for families.

Contributions are paid before taxes and are also tax deductible. However, the contribution limits are lower than those of the other accounts discussed: up to $4,150 for individuals and up to $8,300 for families, for 2024. Annual catch-up contributions of $1,000 are authorized for single people or for each person in a family aged 55 or over. .

Withdrawals for qualified health expenses, such as dental care or prescriptions, are tax-free, while other withdrawals are subject to income tax and a 20% penalty before age 65 .

“HSAs are arguably the most tax-advantaged account available, with pre-tax contributions, tax-free distributions for healthcare expenses, and the ability to use it the same way as an IRA after age 65,” explains Rucci.

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