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How to Save for Retirement Without a 401(k)

When it comes to saving for retirement, the 401(k) is often the go-to option for many. However, not everyone has access to this employer-sponsored retirement plan. Whether your employer doesn’t offer a 401(k) or you’re self-employed, there are still plenty of ways to build your retirement savings. In this article, we’ll explore several alternatives to the 401(k) that can help you secure your financial future.

1. Traditional Individual Retirement Account (IRA)

A traditional IRA is a retirement account that you can open and fund yourself through a bank, credit union, brokerage firm, or mutual fund provider. It offers several benefits similar to a 401(k):

• Your contributions may be tax-deductible.
• Your money will grow on a tax-deferred basis.
• You’ll be taxed on distributions you take in retirement.

However, withdrawing funds before age 59½ typically results in a 10% early withdrawal penalty. You must also start taking required minimum distributions (RMDs) at age 73, which will increase to 75 in 2033.

Contribution Limits

In 2023, you can contribute up to $6,500 across all your IRAs. Those who are 50 and older can kick in an extra $1,000.

2. Roth IRA

Unlike a traditional IRA, a Roth IRA is funded with after-tax dollars. This means you can withdraw your contributions at any time without penalty, provided you’ve had the account for at least five years. However, you may be taxed on Roth IRA gains if you withdraw money before age 59½.

• Contributions are not tax-deductible.
• RMDs are not required (unless it’s an inherited Roth IRA).
• You cannot contribute to a Roth IRA if your modified adjusted gross income exceeds certain limits.

Contribution Limits

In 2023, the contribution limit for a Roth IRA is $6,500 ($7,500 if you’re 50 or older).

3. Solo 401(k)

Solo 401(k)s are designed for business owners who don’t have employees. They have the same requirements and rules as regular 401(k)s. As both the employee and employer, you can make tax-deductible contributions, which can significantly boost your retirement savings.

• You’ll be taxed on retirement withdrawals.
• Early withdrawals before age 59½ typically incur a 10% penalty.
• RMDs begin at age 73.

Contribution Limits

In 2023, as the employee, you can contribute up to $22,500. As the employer, you can contribute up to 25% of your compensation. The total contributions for 2023 cannot exceed $66,000, with an additional $7,500 for those 50 and older.

4. Brokerage Account

A brokerage account is an investment account that can help you save for various financial goals. While it doesn’t offer the tax benefits of a 401(k) or IRA, it can be a valuable addition to your retirement savings strategy. You can open one through an investment brokerage and purchase securities such as individual stocks, ETFs, and mutual funds.

• Earnings are taxed during the year they’re realized.
• RMDs are not required.
• There are no early withdrawal penalties.

Contribution Limits

Brokerage accounts have no contribution limits.

5. Health Savings Account (HSA)

While not technically a retirement account, an HSA can still help you build your nest egg if you’re eligible to contribute. It allows you to set aside pretax dollars for qualified medical expenses, and you may also be able to invest your balance to earn tax-free interest.

• You must be enrolled in a high-deductible health plan (HDHP) to open an HSA.
• RMDs do not apply.
• Withdrawing HSA funds for non-qualified medical expenses before age 65 incurs a 20% penalty.

Contribution Limits

In 2023, the contribution limit is $3,850 for self-only coverage and $7,750 for family coverage.

How to Save More for Retirement Without a 401(k)

Here are some tips to help you maximize your retirement savings:

Automate Your Contributions

Set up recurring transfers from your checking account to your retirement accounts to ensure you stay on track with your savings goals.

Gradually Increase Your Contributions

Aim to save 15% of your income for retirement in your 20s and 30s, and increase it to 20% in your 40s and beyond.

Avoid Dipping Into Your Retirement Funds

Withdrawing funds before retirement can trigger penalties and deplete your savings, reducing the benefits of compound interest.

The Bottom Line

While a traditional 401(k) is a great way to save for retirement, it’s not the only option. By exploring alternatives like IRAs, Solo 401(k)s, brokerage accounts, and HSAs, you can build a robust retirement savings plan. Remember, the key is to start saving early and consistently, even if you’re getting a late start.

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