How To Plan For Retirement When You Don't Have An Employer Telling You What To Do

One of the first pieces of advice anyone gets when trying to save for retirement is to make contributions to an employer-sponsored 401(k). And it’s true that a 401(k) can be a powerful tool that can help you reach your retirement goals — but approximately 45% of the U.S. workforce doesn’t have access to one, and only a portion of those have access to an employer match on their contributions. Personal reasons for not having 401(k) access vary, from being employed by a company that simply doesn’t offer a comprehensive retirement package to being a full-time freelancer to owning your own business.

Luckily, there are several other options for you to save for retirement other than through an employer-sponsored plan. Depending on your circumstances, you might not be eligible for or have access to all of these options, but they are possibilities worth exploring.

  1. Open a traditional or Roth IRA — or consider using both.
    An Individual Retirement Account comes in two basic flavors: traditional and Roth. These accounts are frequently recommended as the next-best option for people who don’t have access to a 401(k). Contributions to traditional IRAs are deductible upfront (if you qualify), and your funds grow tax-free until you begin making withdrawals. Contributions to Roth IRAs, on the other hand, are taxed upfront, but in exchange, all qualifying distributions are tax free.

    Traditional and Roth IRAs have a contribution limit of $5,500, plus an extra $1,000 “catch up” contribution if you’re 50 or older. These are the total annual contribution limits for IRAs, even if you contribute to both types of accounts. If you make it a goal to hit that contribution limit every year, you’ll have a solid foundation for your retirement planning.

    For a more in-depth look at the similarities and differences between traditional and Roth IRA accounts, check out this comparison chart from the IRS. Depending on your income level and current tax situation, it may make sense to do one type of account instead of the other — or even to contribute to both to take advantage of their unique features.

  2. Open a SEP-IRA, if you are eligible for one.
    A Simplified Employee Pension Plan, or SEP-IRA, is a type of retirement account that is available to any business, no matter the size, including self-employed individuals. What makes SEP IRAs exciting for freelancers is that contributions can be up to 25% of the employee’s compensation, with a 2018 cutoff of $55,000. As you can imagine, a SEP-IRA can be an extremely valuable retirement savings option for full-time freelancers or for those with a day job and a lucrative side gig.

    One thing to note, however, is that all eligible employees must be treated equally when it comes to SEP-IRA contributions. As an example, the company must contribute the same percentage of salary for all employees. If you’re the only employee for your business, this isn’t an issue, but it is something to keep in mind if you have other employees. You can learn more about how SEP-IRAs work at the IRS website.

  3. Fund your HSA, if available.
    While Health Savings Accounts, or HSAs, aren’t specifically geared for retirement, they have some interesting features that may make them a worthwhile option if you’ve already maxed out your traditional, Roth, and SEP-IRA options. HSAs are tied to High Deductible Health Plans and allow you to set aside pre-tax money for future healthcare expenses — and distributions are also tax free, provided they are used for qualifying healthcare expenses. If you’re single, you can contribute a total of $3,450, while a family can set aside $6,900. If you’re over the age of 55, you can contribute an additional $1,000.

    It’s estimated that a couple retiring today at age 65 will need approximately $280,000 for their healthcare, so an HSA could serve as your dedicated healthcare expenses account in retirement. But HSAs also have an interesting feature for added flexibility: if you’re over the age of 65, you can withdraw the money for anything, not just medical expenses, and have it taxed as regular income. This flexibility makes an HSA an attractive option for those who have access to it.

  4. Open a regular brokerage account.
    And finally, once all of your other options have been explored, you can always open a regular, taxable brokerage account to save for your retirement. A normal brokerage account doesn’t give you the tax advantages of the other accounts, but it can make up for that with its flexibility. You can contribute to the account without worrying about income or contribution limits, and you can take distributions no matter your age or what the expense is for. Then, all you’ll have to worry about when you retire is long-term capital gains tax.
If you don’t have access to a 401(k), you don’t need to panic about your future. There are still several avenues open to you to save for retirement, whether through a traditional or Roth IRA, a SEP-IRA, an HSA, a brokerage account, or a combination of these. Figure out what’s right for you and your financial situation, and then begin saving for your retirement as soon as you can.