How to Save for Retirement Without a 401K (10 Helpful Tips!)

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Knowing how to save for retirement without a 401K is easier than it seems. While a 401K provides an organized way to save for retirement, you can get similar benefits with retirement accounts you handle yourself.

Here’s everything you must know about retirement savings to ensure you have what you need.

Is There a Better Alternative to Saving for Retirement than a 401K?

You can use it if you are employed and your employer offers a 401K. This is especially important if your employer matches a percentage of your contributions. It’s like getting free money.

Even if your employer doesn’t offer an employer match, setting aside a small percentage of your paycheck regularly helps you save for retirement. Today, it also offers tax benefits as you contribute to a 401K before tax.

However, if you don’t have a 401K, or need other ways to save because you’ve maxed out your contributions, there are many ways to consider. The key is determining what benefits and how much you want to contribute, as each account has different limits.

10 Alternative Ways to Save for Retirement Without a 401K

How you save for retirement without a 401K depends on your employment status. For example, if you are a small business owner, you may have more options than someone who doesn’t own a small business.

1. IRA

Anyone who earns income can open an IRA or Individual Retirement Account. You must file taxes to prove your income and have an account. IRAs work like a 401K without the employer-sponsorship. You contribute funds before taxes and pay taxes on your withdrawals according to the tax bracket when you withdraw the funds.

IRAs have some differences, though, especially the contribution limit. In 2024, the contribution limits are $6,500 per person under age 50 and $7,500 for those over 50.

Another difference is you have more control over the investment options in an IRA because you can open one at any broker or bank. Employer-sponsored retirement plans restrict you to the investments they offer.

2. Roth IRA

A Roth IRA is another version of the individual retirement account. You contribute funds after tax instead of receiving the tax benefit when you contribute. However, when you withdraw the funds in retirement (including earnings), they are tax-free as long as they have been in the account for five years or longer.

The Roth IRA contribution limits are identical to those of traditional IRAs, but also, like traditional IRAs, you have more control over what you invest in, which some people prefer.

3. Spousal IRA

IRAs are technically for people with earned income; however, there is an exception for married couples as long as you file taxes jointly.

This means a non-working spouse can contribute up to $6,500 to their IRA in 2024. Spousal IRAs can be traditional or Roth. The non-working spouse owns the account; it’s not in the working spouse’s name.

4. SEP IRA

A Simplified Employee Pension has a higher contribution limit than IRAs and is a good option for business owners. The maximum amount you can contribute to a SEP IRA is $66,000 or 25% of your annual income, whichever is less.

The kicker is that if you have employees, whatever percentage of your income you contribute to your retirement account, you must do the same for your employees. So, if you contribute 15% of your income to your retirement account, you must also contribute 15% of your employees’ income to their retirement accounts.

5. Simple IRA

Small business owners can also consider a SIMPLE IRA if they have employees. This plan is more similar to a 401K than any other plan. Employees can defer up to $15,500 of their income (or 100% of their income, whichever is less) for retirement.

Employers must also either contribute a 3% match to an employee’s contributions or a 2% nonelective contribution, which means even if employees don’t contribute, you contribute for them.

6. Self-Employed 401K

A self-employed 401K or solo 401K is for business owners without employees. The only exception is if your spouse works for you.

With this plan, you contribute as an employee and employer. As an employee, you can contribute less than 100% of your income or $22,500 (for 2024). You can also contribute as the employer by contributing up to 25% of your earnings for $66,000 in 2024.

7. Brokerage Account

If you don’t want to mess with tax deferral accounts, or you’ve maxed out your options with an IRA or a similar account, you can consider a taxable brokerage account. In a brokerage account, you can own just about any investments, including:

  • Stocks
  • Bonds
  • Mutual funds
  • ETFs
  • Options
  • Money market funds
  • CDs
  • Alternative assets

There aren’t any rules you must follow regarding taxable accounts except paying taxes on your earnings.

The downside of a brokerage account for retirement is that you don’t get the tax benefits. In other words, you don’t get a tax deferral for your contributions. It would be best if you considered keeping the assets long-term (at least one year) to reduce your tax burden. This allows you to take advantage of higher long-term capital gains taxes versus higher short-term ones.

You can choose where to open your brokerage account and even own multiple accounts. The key is to watch the fees and look for brokers that offer investments you want to invest in to maximize your earnings.

8. Real Estate Investments

Your retirement investments can be in assets other than those in the stock market. Real estate investments are a popular way to save for retirement. You can invest in physical real estate, such as owning a house or building, or indirectly through REITs or real estate stocks.

If you invest in physical real estate, you earn monthly income from the rent plus the capital appreciation the property experiences. However, it’s not a passive investment unless you hire someone to handle your property.

When you invest in real estate investment trusts, you invest in a company that handles your real estate. The downside is you don’t have a say in the properties they purchase or how they handle them.

9. Invest in a Business

Investing in a business is another way to invest for retirement without a 401K. You can open and run a business or be an investor in someone else’s business. Investing in a business has no cap on the earnings, and you can choose to run it yourself or hand the reins over to someone else.

10. Health Savings Account

A Health Savings Account may not feel like a retirement account, but your medical expenses are a big part of your retirement. Without medical insurance, you must rely on Medicare or private insurance, neither of which will cover 100% of your medical expenses.

An HSA is a medical savings account with tax advantages. You can contribute to an HSA while you work if you have a high-deductible health insurance plan. You can then save the funds for retirement; they don’t expire. The current contribution limit for HSA accounts is $3,850 per individual per year.

Tips for Saving for Retirement Without a 401K

Whether you have a 401k and want to supplement your savings or you don’t have one, here are some tips to help you save for retirement outside of a 401k.

  • Set up automatic contributions: Don’t leave contributing to your retirement to chance. Set up automatic contributions that align with your paydays so you always put money away from retirement.
  • Diversify your investments: Don’t put all your eggs in one basket. Invest in many areas so you don’t risk everything if the market falls. Even if you have a 401 (k), it’s a good idea to invest funds in other assets, like real estate.
  • Check your progress: Track your progress and adjust as needed if you aren’t seeing the anticipated growth.
  • Invest more as your income increases: Change your contributions as often as your income changes. If you get a new job, a raise, or come into money, be sure to change how much you contribute to save more for retirement.

Final Thoughts

Knowing how to save for retirement without a 401K is important. Even if you have a 401K, you may want to supplement or not stay at that job through retirement.

Diversifying your investments and protecting yourself is the key to a successful retirement. Consider tax-advantaged and taxable accounts, including real estate and investing in businesses, to maximize your retirement earnings.

Additional reading: What To Do 6 Months Before Retirement

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