What to Do If Your Employer Doesn’t Offer a 401(k)?

Many individuals find their employer does not offer a 401(k) plan. While a 401(k) is a recognized retirement vehicle, its absence does not diminish the importance of saving for the future. Fortunately, effective alternatives exist for building a retirement nest egg. These options offer various tax advantages and flexibility, allowing individuals to tailor their savings strategy.

Individual Retirement Account Options

Individual Retirement Accounts (IRAs) are a primary alternative for those without an employer-sponsored 401(k). These accounts allow individuals to save for retirement with potential tax benefits and are broadly accessible. Traditional and Roth IRAs are the two main types, each with distinct features.

A Traditional IRA allows contributions to be tax-deductible in the year they are made, which can reduce taxable income. Earnings grow on a tax-deferred basis, with taxes paid upon withdrawal in retirement. Distributions in retirement are taxed as ordinary income, and early withdrawals before age 59½ may incur a 10% penalty and income tax.

In contrast, a Roth IRA is funded with after-tax contributions, which are not tax-deductible. The advantage of a Roth IRA is its tax-free growth and qualified withdrawals in retirement. Qualified withdrawals are tax-free if the account has been open for at least five years and the owner is age 59½ or older. For 2025, individuals can contribute up to $7,000 to either a Traditional or Roth IRA. Those age 50 and over can make an additional catch-up contribution of $1,000, bringing their total annual limit to $8,000.

Eligibility for a Roth IRA is subject to income limitations. For 2025, single filers must have a modified adjusted gross income (MAGI) of less than $150,000 for a full contribution, while married couples filing jointly must have a MAGI of less than $236,000. Choosing between a Traditional and Roth IRA depends on an individual’s current income level and expectations for future tax brackets. If one anticipates being in a higher tax bracket in retirement, a Roth IRA’s tax-free withdrawals may be more advantageous.

Opening and funding an IRA involves straightforward steps. Individuals can establish an account with various financial institutions, including banks, brokerage firms, and mutual fund companies. The process requires completing an application, providing personal identification, and linking a bank account for electronic contributions. Once established, regular contributions can be set up, or lump sums can be deposited.

Retirement Plans for Business Owners and Self-Employed Individuals

For business owners and self-employed individuals, a set of retirement plans offers higher contribution limits than individual IRAs. These plans recognize that the individual serves as both employer and employee, allowing for dual contributions and increased savings. Understanding these options is important for retirement planning.

A Solo 401(k), also known as an individual 401(k), is designed for self-employed individuals or business owners with no employees other than a spouse. This plan allows contributions as both an employee and an employer. For 2025, an individual can contribute up to $23,500 as an employee. If age 50 or older, an additional catch-up contribution of $7,500 is permitted, increasing the employee contribution to $31,000. As the employer, one can contribute up to 25% of their compensation, with total combined employee and employer contributions capped at $70,000 for those under age 50 in 2025, or up to $77,500 if age 50 or older.

The Simplified Employee Pension (SEP) IRA is another option for self-employed individuals and small business owners. Its advantage is administrative simplicity compared to a Solo 401(k). Contributions to a SEP IRA are made solely by the employer and are tax-deductible for the business. For 2025, the maximum contribution to a SEP IRA is the lesser of 25% of an employee’s compensation or $70,000. While employees cannot make salary deferrals, self-employed individuals benefit from the high employer contribution limit.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is suitable for small businesses with 100 or fewer employees. This plan requires mandatory employer contributions, either as a dollar-for-dollar match up to 3% of an employee’s compensation or a non-elective contribution of 2% of compensation for all eligible employees. For 2025, employees can contribute up to $16,500, with a catch-up contribution of $3,500 for those age 50 and over, bringing the total to $20,000.

Setting up these plans involves selecting a financial institution and completing the necessary paperwork. For Solo 401(k)s, this includes adopting a plan document and establishing both an employee and employer account. SEP IRAs are established using IRS Form 5305-SEP. SIMPLE IRAs involve specific IRS forms and an agreement between the employer and employees. Once established, contributions are made according to the plan’s rules and IRS limits, with tax-deductible contributions made by the tax filing deadline.

Other Savings Vehicles for Retirement

Beyond dedicated retirement accounts, other savings vehicles can offer flexibility and additional tax advantages. These accounts provide benefits that enhance financial security in later life.

Health Savings Accounts (HSAs) offer a “triple tax advantage,” making them a valuable tool. Contributions are tax-deductible, funds grow tax-free, and qualified withdrawals for medical expenses are also tax-free. To be eligible for an HSA, an individual must be enrolled in a high-deductible health plan (HDHP). For 2025, the maximum contribution for self-only HDHP coverage is $4,300, and for family HDHP coverage, it is $8,550. Individuals age 55 and over can make an additional catch-up contribution of $1,000. After age 65, HSA funds can be withdrawn for any purpose without penalty, though non-medical withdrawals are subject to income tax.

Taxable brokerage accounts provide another avenue for retirement savings, though they do not offer the same tax advantages as retirement-specific accounts or HSAs. These general investment accounts allow for unlimited contributions, offering flexibility and liquidity. Investments held in these accounts, such as stocks, bonds, and mutual funds, are subject to capital gains tax when sold at a profit, and dividends are taxed annually. While lacking upfront tax deductions or tax-free growth, their unrestricted contribution potential and accessibility are beneficial for those who have maximized other tax-advantaged accounts or desire greater control over their investments.