How to Invest in a 401k Without an Employer

Many individuals lack an employer-sponsored 401(k) plan, whether due to self-employment, working for a small business, or being part of the gig economy. This often raises retirement savings concerns. While employer-provided 401(k)s are popular for their simplicity and tax advantages, their absence does not prevent robust retirement savings. Various tax-advantaged alternatives offer similar benefits for long-term financial growth.

Individuals can establish their own retirement vehicles, offering flexibility and control over investments. These personal plans provide distinct advantages, such as tax-deferred growth or tax-free withdrawals in retirement, depending on the chosen structure. Understanding these alternatives is fundamental to building a secure financial future without a traditional workplace retirement plan.

Retirement Plan Options for Individuals Without Employer-Sponsored Plans

Individuals without an employer-sponsored 401(k) have several robust retirement plan options offering tax advantages for long-term savings. Each plan type serves different needs and eligibility criteria.

Solo 401(k)

The Solo 401(k) is designed for self-employed individuals or business owners with no full-time employees other than themselves or a spouse. It allows contributions as both an employee and an employer. For 2025, the employee contribution limit is $23,500, with an additional catch-up contribution of $7,500 for those age 50 and older.

As the employer, you can contribute up to 25% of your net self-employment earnings. Total combined contributions (employee and employer) can reach $70,000 for 2025, excluding catch-up contributions. Contributions can be pre-tax, reducing current taxable income, or Roth, allowing for tax-free withdrawals in retirement.

SEP IRA

A Simplified Employee Pension (SEP) IRA is primarily for self-employed individuals and small business owners. Unlike the Solo 401(k), only employer contributions are permitted; individuals cannot make employee salary deferrals. Contributions are generally limited to 25% of an employee’s compensation, or 25% of net self-employment earnings for self-employed individuals, up to a maximum of $70,000 for 2025. These contributions are tax-deductible for the business, and earnings grow tax-deferred until retirement. Their simple setup and lower administrative costs make SEP IRAs attractive.

SIMPLE IRA

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is typically used by small businesses with 100 or fewer employees. Even a very small business owner with no other employees might consider it. Employees can make salary reduction contributions, which for 2025 are $16,500, with an additional catch-up contribution of $3,500 for those age 50 and older. Employers are generally required to make a matching contribution up to 3% of an employee’s compensation or a fixed 2% non-elective contribution.

Traditional IRAs and Roth IRAs

Traditional IRAs and Roth IRAs are foundational individual retirement accounts for most individuals with earned income. For 2025, the combined contribution limit across all IRAs is $7,000, with an additional $1,000 catch-up contribution for those age 50 and older, for a total of $8,000. Contributions to a Traditional IRA may be tax-deductible, depending on income and whether the individual is covered by another retirement plan, and earnings grow tax-deferred. Roth IRA contributions are made with after-tax dollars, thus not tax-deductible, but qualified withdrawals in retirement are tax-free. Eligibility for Roth IRA contributions is subject to Modified Adjusted Gross Income (MAGI) limits.

Choosing the Right Retirement Plan

Selecting the most suitable retirement plan requires evaluating financial circumstances and future aspirations. The choice often depends on factors like current income, desired contribution levels, and long-term business and personal goals. Understanding how these elements interact with each plan’s features is essential for an informed decision.

Income level

Income level significantly influences which plan is most advantageous. For those with substantial self-employment income, a Solo 401(k) or SEP IRA can facilitate much higher contributions than a Traditional or Roth IRA, offering greater tax deferral or tax-free growth potential. Combined employee and employer contributions to a Solo 401(k) can greatly exceed individual IRA limits, allowing for accelerated savings. If income is moderate or lower, Traditional or Roth IRAs might be more appropriate due to their simpler structure and lower contribution minimums.

Administrative complexity

Administrative complexity is an important consideration. SEP IRAs are generally simpler to establish and administer compared to Solo 401(k)s, which may involve more paperwork and compliance requirements. Traditional and Roth IRAs are typically the easiest to set up and manage, requiring minimal administrative effort. Comfort with managing compliance and record-keeping should factor into the decision.

Roth contributions

The desire for Roth contributions, allowing for tax-free withdrawals in retirement, can also guide the choice. Both Solo 401(k)s and Roth IRAs offer a Roth contribution option, providing flexibility for those who anticipate being in a higher tax bracket in retirement. SEP IRAs and Traditional IRAs generally involve pre-tax contributions and tax-deferred growth, with withdrawals taxed as ordinary income in retirement. This distinction should align with long-term tax planning strategy.

Future business growth

Future business growth and potential to hire full-time employees are relevant. A Solo 401(k) is designed for businesses without common-law employees (other than a spouse); hiring additional employees would necessitate converting it to a different qualified plan. SEP IRAs can accommodate future employees more easily, as contributions are made on behalf of all eligible employees at the same percentage rate as the owner. SIMPLE IRAs are also designed for small businesses with employees, making them a consideration if hiring is anticipated.

Age and retirement horizon

Age and retirement horizon influence the choice between pre-tax and Roth contributions. Younger individuals with a longer time horizon might benefit more from Roth contributions, as their tax-free growth over decades could be substantial. Those closer to retirement might prefer pre-tax contributions to reduce current taxable income, especially if they expect to be in a lower tax bracket in retirement.

Setting Up and Contributing to Your Plan

Once a suitable retirement plan type is identified, the next steps involve establishing the account and initiating contributions. This phase requires selecting a financial institution, completing necessary paperwork, and setting up a consistent funding strategy.

Choosing a plan provider or custodian

First, choose a plan provider or custodian. Most major brokerage firms, mutual fund companies, and online investment platforms offer options for opening Solo 401(k)s, SEP IRAs, Traditional IRAs, or Roth IRAs. When evaluating providers, consider administrative fees, investment options (e.g., mutual funds, exchange-traded funds, individual stocks, bonds), and customer support and educational resources.

Opening the account

Opening the account involves an online application or submitting physical forms. You will need to provide personal information, such as your Social Security number, and business details if opening a self-employed plan like a Solo 401(k) or SEP IRA. Link a bank account for funding, allowing for electronic transfers of contributions. The provider will then establish the plan and provide account access.

Making contributions

Making contributions involves initial funding and establishing a routine for ongoing deposits. For Solo 401(k)s, you can make both employee salary deferral contributions and employer profit-sharing contributions. Employee contributions are often made directly from a personal bank account. Employer contributions, based on net self-employment income, can also be transferred from a business checking account to the Solo 401(k) account. These contributions must be made by the tax filing deadline, including extensions.

For IRAs and SEP IRAs, contributions are typically made as lump sums or through automated transfers from a linked bank account. Consistent contributions, whether weekly, monthly, or quarterly, help build savings over time and benefit from dollar-cost averaging. Track contributions to ensure they do not exceed annual IRS limits for your chosen plan type.

Investment selection

After funding the account, selecting appropriate investments within the plan is a key next step. Most providers offer a wide array of investment choices, including target-date funds, index funds, actively managed mutual funds, and individual securities. Investment selection should align with risk tolerance, time horizon until retirement, and overall financial goals. Periodically reviewing and rebalancing your investment portfolio is important to maintain alignment with your strategy.

Compliance

Finally, be mindful of compliance and maintenance requirements. For Solo 401(k)s, if plan assets exceed $250,000 at the end of a plan year, you are generally required to file Form 5500-EZ with the IRS. This form provides information about the plan’s financial condition and operations. While not typically required for IRAs or SEP IRAs, maintaining accurate records of contributions, distributions, and beneficiary designations is good practice for any retirement account.