Retirement Plan Alternatives to a 401k

The 401(k) plan is a retirement savings tool provided by many employers. It allows employees to contribute a portion of their salary on a pre-tax basis, with funds growing tax-deferred until retirement. Many employers also offer a matching contribution, which accelerates savings.

However, access to employer-sponsored plans is not universal, as freelancers, gig workers, and employees of small businesses may not have a 401(k) available. Fortunately, the U.S. tax code provides a range of retirement savings alternatives. These options have distinct features and benefits, ensuring that individuals without a 401(k) can build a secure retirement.

Retirement Plans for Individuals

For individuals saving for retirement without an employer plan, Individual Retirement Arrangements (IRAs) are a common tool. Anyone with earned income can contribute to an IRA. These accounts offer tax advantages and come in two primary forms that cater to different financial situations.

A Traditional IRA allows individuals to make contributions that may be tax-deductible. For 2025, you can contribute up to $7,000, or $8,000 if you are age 50 or older, as long as you have that much in earned income. The deductibility of these contributions depends on your income and whether you are covered by a retirement plan at work; if not, contributions are fully deductible. If you are covered by a workplace plan, the deduction is phased out at higher income levels. Investments grow tax-deferred, and withdrawals in retirement after age 59½ are taxed as ordinary income.

The Roth IRA offers tax advantages on the back end, as contributions are made with after-tax dollars and are not deductible. The annual contribution limits are the same as a Traditional IRA. Investments grow completely tax-free, and qualified withdrawals in retirement are also tax-free. Eligibility to contribute directly is subject to income limitations, phasing out for single filers with a Modified Adjusted Gross Income between $150,000 and $165,000 and for joint filers between $236,000 and $246,000 in 2025. High-income earners can use a “Backdoor Roth IRA” strategy, which involves contributing to a non-deductible Traditional IRA and then converting it to a Roth IRA.

A Health Savings Account (HSA) can function as a supplemental retirement savings vehicle. To be eligible, you must be enrolled in a high-deductible health plan (HDHP). An HSA provides a triple-tax advantage: contributions are tax-deductible, funds grow tax-free, and withdrawals for qualified medical expenses are tax-free. For 2025, the maximum contribution is $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution for those 55 and older. After age 65, funds can be withdrawn for any reason without penalty and are taxed as ordinary income, making the HSA useful for both healthcare and retirement.

Retirement Plans for the Self-Employed and Small Business Owners

Self-employed individuals and small business owners have access to retirement plans with contribution limits higher than traditional IRAs. These plans are designed for the income structures of entrepreneurs, freelancers, and small companies. They allow business owners to save for their own retirement while sometimes offering a benefit to their employees.

The Simplified Employee Pension (SEP) IRA is an option for sole proprietors and small businesses known for its high contribution limits and administrative simplicity. Only the employer, which is the individual for a sole proprietor, can contribute to a SEP IRA. For 2025, contributions are limited to 25% of an employee’s compensation or $70,000, whichever is less. For the self-employed, this calculation is based on net adjusted self-employment income. Contributions are not required every year, making the plan suitable for businesses with variable income.

The Savings Incentive Match Plan for Employees (SIMPLE) IRA is available to businesses with 100 or fewer employees. This plan allows contributions from both the employee and the employer. The employer is required to contribute, either by matching employee contributions up to 3% of compensation or by contributing 2% of compensation for all eligible employees. A SIMPLE IRA involves more administrative steps and mandatory employer funding than a SEP IRA. The deadline to establish a SIMPLE IRA for the current tax year is October 1.

A Solo 401(k) is for a self-employed individual with no employees other than a spouse. The plan allows the business owner to contribute as both the “employee” and the “employer.” As the employee, they can contribute up to 100% of their compensation up to the annual deferral limit, and as the employer, they can contribute up to 25% of compensation. A Solo 401(k) can also include a Roth contribution component and may permit plan loans. This dual contribution structure allows for high potential savings.

Advanced Retirement Strategies for High Earners

A specialized option exists for high-income business owners looking to maximize their retirement savings. This strategy involves establishing a formal pension plan, which operates differently than the accounts previously discussed. It requires more commitment and administrative oversight but can provide for large tax-deductible contributions.

A Defined Benefit Plan is a qualified retirement plan where the retirement benefit is predetermined by a formula, not investment returns. The plan specifies a fixed income the participant will receive in retirement, similar to a traditional corporate pension. The business is responsible for funding the plan to meet these future obligations.

An actuary calculates the annual contribution amount required to fund the promised benefit. This calculation considers the owner’s age, compensation, and desired retirement benefit. Contributions can be much larger than the limits for SEP IRAs or Solo 401(k)s, sometimes exceeding $100,000 per year. This makes them attractive for profitable businesses wanting to accelerate savings. However, these plans have higher setup and administration costs due to actuarial work and complex compliance.

Using Taxable Investment Accounts

A standard taxable brokerage account is a flexible component of a financial plan. Unlike IRAs or 401(k)s, these accounts do not offer tax deductions or tax-deferred growth. Contributions are made with after-tax dollars, and income from dividends, interest, or realized capital gains is taxed annually.

The main characteristic of a taxable account is its liquidity and lack of restrictions. There are no contribution limits or income-based eligibility requirements. Funds can be withdrawn at any time and for any reason without the 10% early withdrawal penalty that applies to most retirement accounts.

This flexibility makes taxable accounts useful for goals that arise before retirement, like a down payment on a house. They also serve as a supplemental savings tool for high-income earners who have maxed out their tax-advantaged plans. Holding investments for more than one year before selling allows gains to be taxed at more favorable long-term capital gains rates.