Saving for Retirement Without a 401(k)

July 19, 2021

Our last SquareOne blog covered retirement savings for individuals with defined contribution retirement plans through their employer – the 401(k) with the Employer Match. However, suppose you are one of the 36% of private industry workers whose employer does not offer a defined contribution plan. In that case, you may be looking for options on how to get started with your retirement savings.

If your employer does not offer a defined contribution retirement plan, below are a few options for you to consider:

Account Type	Tax-Deductible Contributions	Contribution Limits	Taxes on Earnings within the Account	Early Withdrawal Penalties
Traditional IRA	YES	$6,000/year ($7,000 if over 50)	NO	YES, with exceptions
Roth IRA	NO	$6,000/year ($7,000 if over 50)	NO	YES, with exceptions
Brokerage	NO	NONE	YES, Dividends, Interest, & Capital Gains	NO

If you are self-employed, a freelancer, or an independent contractor, you can utilize any of the above options, but you also can use the following:

Account Type	Tax-Deductible Contributions	Contribution Limits	Taxes on Earnings within the Account	Early Withdrawal Penalties
SEP IRA	YES	25% of eligible compensation or $58,000, whichever is lower	NO	YES, with exceptions
Self-Employed 401(k)	YES (you may be able to make Roth contributions as well)	Up to 100% of compensation, with a maximum of $19,500 in 2021. Over age 50, you may contribute an extra $6,500. You may also make an “employer” contribution up to 25% of eligible earnings	NO	YES, with exceptions
SIMPLE IRA	YES	Up to 100% of compensation, with a maximum of $13,500. Over age 50, you may contribute an additional $3,000. You may also make an “employer” contribution of 3% of compensation.	NO	YES, with exceptions

The above tables are a brief overview of the types of accounts that may be available to you; if you are interested in using one of these tools to begin or maximize retirement savings, be sure to consult with your tax professional.

SquareOne: A Financial Foundations Blog is a personal finance series from The Welch Group created to help provide readers with the foundational knowledge to be purposeful with money by identifying key financial concepts to help them control their financial future. Foundation topics include personal savings strategies, debt consolidation and reduction, life planning, retirement planning methods, and beginner essentials of investing and taxes.

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Traditional IRA

YES

$6,000/year ($7,000 if over 50)

NO

YES, with exceptions

Roth IRA

NO

$6,000/year ($7,000 if over 50)

NO

YES, with exceptions

Brokerage

NO

NONE

YES, Dividends, Interest, & Capital Gains

NO

SEP IRA

YES

25% of eligible compensation or $58,000, whichever is lower

NO

YES, with exceptions

Self-Employed 401(k)

YES (you may be able to make Roth contributions as well)

Up to 100% of compensation, with a maximum of $19,500 in 2021. Over age 50, you may contribute an extra $6,500. You may also make an “employer” contribution up to 25% of eligible earnings

NO

YES, with exceptions

SIMPLE IRA

YES

Up to 100% of compensation, with a maximum of $13,500. Over age 50, you may contribute an additional $3,000. You may also make an “employer” contribution of 3% of compensation.

NO

YES, with exceptions