Invest Retirement

No 401(k)? No Worries, You Can Still Retire On Time

Pam Krueger  |  September 8, 2021

Not every employer offers a 401(k) as a retirement savings vehicle. Even without one, you can still make sure you’re on track to retire on time.

If you work for a company that offers a 401(k), it’s easy to build up your savings for retirement. The money is automatically deposited from your paychecks ‘pre-tax,’ without you ever having to think about it. And we all love saving pre-tax — that means that money you would have paid to Uncle Sam instead goes toward your retirement. A win-win! Automatic deposits to your retirement account also mean there’s less chance you’ll spend that money somewhere else. (Out of sight, out of mind!)  It’s a great way to pay yourself first, which is one of the cornerstones of building wealth. If you’re fortunate enough to work for a company that offers to match any portion of your contributions, that’s just free money that’s like a rocket-booster to your investment returns. 

But if you don’t have a 401(k), don’t worry – you still have several ways to save for the future. If you’re self-employed, freelancing, a gig worker, or even if you’re not working at all right now, there are still opportunities to jumpstart your retirement plan and take advantage of valuable tax breaks, too. Here’s a look at options that will work for everyone. 

A SEP or solo 401(k) 

If you have any income from freelance or self-employed work – even if you’re just doing some gig work on the side – you can save in a simplified employee pension (SEP) or a solo 401(k). Your contributions can reduce your taxable income now and grow tax-deferred for the future. If you have a solo 401(k), you also have the option to make Roth contributions, which don’t give you a tax break now but can be tapped tax-free in retirement. A SEP is easiest to open up and is available at many brokerage firms, banks and mutual fund companies. You can contribute up to about 20% of your net income from self-employment, up to a maximum of $58,000 in 2021. Or you may be able to save more in a solo 401(k) – you can contribute up to $19,500 in 2021 (or $26,000 if 50 or older), plus about 20% of your net self-employment income, up to a total of $58,000 in 2021.

IRA Contributions on autopilot

Anyone who earns income from working can contribute to an IRA, even if you have a 401(k), too. You can contribute up to $6,000 in 2021 (or $7,000 if you’re 50 or older). If your income is less than $125,000 in 2021 (or $198,000 if married filing jointly), those contributions can be to a Roth IRA. With a Roth, you don’t get a tax break now, but you can withdraw your contributions tax – and penalty – free at any time and you can take the earnings tax-free after age 59 ½. You can open an IRA at a brokerage firm, bank or mutual fund company, too. You can contribute anytime during the year (and even up to April 15, 2022), or you can sign up to have the money deposited directly from your bank account every month – making it automatic retirement savings similar to a 401(k).

A Spousal IRA  

If you or your spouse currently aren’t earning income from a job – either because you’re staying home with kids, have been laid off, or are retired – but your spouse is working, he or she can contribute to a spousal IRA on your behalf. The money is still in your own IRA, can be a traditional or Roth IRA depending on your joint income, and has all of the same options and investing choices. You can contribute up to $6,000 in 2021, or $7,000 if 50 or older.

A Triple Tax-Free HSA 

You may qualify for a triple tax free health savings account. You might think of an HSA as a way to build tax-free savings for health care, but these accounts can be even more valuable than many people realize. They provide a triple tax break: Your contributions are tax-deductible (or pre-tax if through your employer), the money grows tax-deferred, and it can be used tax-free for eligible expenses anytime in the future. You can use the money for health insurance deductibles, co-payments, over-the-counter and prescription drugs, and many drugstore items (including menstrual supplies). After you turn 65 you can even use it tax-free to pay your premiums for Medicare Part B, Part D or Medicare Advantage plans. There are no use-it-or-lose-it rules – you can leave the money growing in the account for years in the future. If you use the money for non-eligible expenses before age 65, you’ll have to pay taxes and a 20% penalty. But the penalty disappears after age 65 and you’ll just have to pay taxes on withdrawals that aren’t for eligible expenses – making it similar to a 401(k) at that point. To qualify to make HSA contributions in 2021, you must have an eligible health insurance policy with a deductible of at least $1,400 for individual coverage or $2,800 for family coverage — whether you have the insurance through work or on your own.

Time + Risk = Strategy

No matter how you decide to save for the future, it’s important to match your investments with your time frame and risk tolerance. All of these accounts give you the option to invest in mutual funds and stocks in addition to a money-market account or savings account. As you decide how to build your retirement savings, it’s a good idea to work with a financial advisor who can help you make the most of these tax-advantaged accounts to help with your financial future. 


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