14 Tips For Saving For Retirement Without A 401(k)

"Don't wait until you have an employer that gives you the ability to participate in a retirement plan."

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We've all heard we should be saving for retirement, but if you don't have access to a 401(k) through your employer, it can be really tough to know how to start.

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For people who get a 401(k) benefit through work, a certain amount of money is taken out of their paycheck and transferred into a retirement account. Those contributions aren't taxed now — instead, they'll be taxed later, when withdrawals are made during retirement. Some companies will even match employees' contributions — usually up to 4.3% of their pay — which can help out a lot.

If you're self-employed or work for a company that doesn't offer that benefit, you'll have to figure it out on your own. But don't worry, you still have plenty of options.

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To help us figure out exactly what those options are, I chatted with Shelly-Ann Eweka, senior director of financial planning strategy at TIAA.

Here are 14 tips that can help you start planning for retirement without a 401(k):

Financial advice is never one-size-fits-all. Always consider your unique situation and life goals before you make any money moves, and reach out to a financial pro if you want more personalized guidance.

1. Say hello to the individual retirement account (IRA).

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The most common types of individual (non–employee sponsored) retirement accounts are the traditional IRA and the Roth IRA. But there are lots more, including Solo 401(k)s and SEP IRAs.

"Don't wait until you have an employer that gives you the ability to participate in a retirement plan," said Eweka, who advises that people "contribute as much as you can and start young." Why? Because the earlier you start putting money in a retirement account, the more time it has to grow into a nice nest egg.

2. Like any investment account, an IRA takes the money you put in and invests it in things like stocks and bonds. You can choose your investment risk tolerance and help decide what you invest your money in.

Evie Carrick

Many IRAs have a risk tolerance questionnaire that helps determine where and how your money is invested. They'll also factor in your age, how much money you're making, and when you hope to retire. This means that you don't have to be a stock market expert to start investing with an IRA (but if you want to learn more about the market, these books, podcasts, and more can help).

"We believe in having a diversified portfolio — some stocks, some bonds, some guarantees — so if you're more aggressive, you might have more money in stock than equities, while someone who's more conservative will have less in the equities," said Eweka.

3. You can probably open an IRA through your bank or credit union.

Evie Carrick

Chances are you can open an IRA account with a financial institution you already use. IRAs are available at most banks, credit unions, online brokers, and investment companies. Or, you can check out apps like Acorns or SoFi, which have super-accessible starting-deposit minimums (think $1 instead of $1,000).

4. If saving for retirement is new to you, you might want to consider a traditional or Roth IRA. Both are easy to use and provide a tax break.

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You can contribute up to $6,000 ($7,000 if age 50 or older) into your traditional or Roth IRA every year — but if you open a second IRA, you'll have to split that annual $6,000 between the two.

Here's the difference between a traditional IRA and a Roth IRA: With the former, you don't have to pay taxes on the money you put into it (hello, tax break!), but you will have to pay taxes on that money when you withdraw it for your retirement, similar to the employer-sponsored 401(k). The Roth IRA is opposite. You are taxed on the money you put into the account upfront, but when you withdraw it in retirement, you usually don't have to pay taxes on it.

"They can add additional savings opportunities for you, and if you don't have an employer plan, then obviously these are the simplest way to get money in and saving for retirement," said Eweka.

5. If you can contribute more than $6,000 a year and you're self-employed, you might consider a Solo 401(k).

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If you're a business owner or self-employed person with no employees and you want to set aside more than $6,000 a year, you might want to consider a Solo 401(k) (also called a one-participant 401(k)).

With this retirement plan, you play the role of both the employer and the employee, which allows you to contribute to the plan in both capacities (just like the employer-sponsored 401(k) outlined in #1). In total, you can contribute up to $58,000 for 2021.

Like the employer-sponsored 401(k) and the traditional IRA, you're not taxed upfront for the money you put in, but you are charged when you withdraw money in retirement.

6. Another popular option is the SEP IRA, which is great for self-employed people who have or plan to have employees.

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Eweka notes that the Simplified Employee Pension IRA (SEP IRA) is "one of the easiest and simplest opportunities for someone who has self-employment income" because "it has low administrative requirements and no IRS reporting."

Plus, if you have employees (or plan to) you can put aside money for them as well as yourself. The contribution limits for an SEP are surprisingly high — up to 25% of each employee’s pay.

7. If you have employees and a larger small business, another good option is the SIMPLE IRA.

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Savings Incentive Match Plan for Employees (SIMPLE IRA) are great for self-employed people who want to set up a retirement plan for themselves and their employees.

Eweka explains that this type of plan is good for when you're starting to have a larger small business. "They're not as convenient as an SEP IRA, and there's more paperwork, especially if you have numerous employees."

8. Keep in mind that you can set up multiple types of retirement accounts.

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You don't have to pick one (or even two) retirement accounts. You can open several.

For example, Eweka says her favorite IRA mix is "the SEP and using a regular Roth or traditional IRA" because, she says, "If you can do more than the $6,000 a year that you’re limited to with IRA, then with an SEP you can contribute up to 25% of your income with some calculations."

And, of course, people who have a 401(k) through their work can still open an IRA on their own separately.

9. No matter what type of account you choose, the important thing is that you choose one (or two) and start putting money in it.

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Eweka recommends putting in between 10% to 15% of your income, but notes, "That might be a lot for someone who's just starting out, and if that's too much, just put in something — you've gotta start somewhere."

The goal here is to get you into the habit of saving. So if you can contribute just $5 a week, that's better than nothing. You can always increase your contributions down the road.

10. If you're worried about saying goodbye to 10% to 15% of your paycheck, you might want to consider a Roth IRA.

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If putting aside that much money makes you nervous, Eweka recommends a Roth IRA. Why? Because you pay taxes on that money upfront, so if you have to take it out (something she says you should avoid, if possible), you can do so without paying a bunch of taxes.

"If that's going to make you feel better, then [with a Roth IRA] you do have access to your contributions, and if you absolutely have to have them — which I don't recommend — you can take them out," she said.

Just keep in mind that if you need to withdraw money from your Roth IRA, you might have to pay a 10% early withdrawal penalty unless you've had the money in the account for over five years or you qualify for a special exception — first-time home purchase, college expenses, and birth or adoption expenses.

11. To help you figure out how much you should be putting aside and what IRA is best for you, you might want to connect with a financial planner.

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A financial planner's job is to find out what's important to you and what your financial goals are. Then, they'll help you figure out how to make those financial goals a reality.

For example, if you want to pay off a credit card but also realize you need to start saving for retirement, they can help you organize your finances in a way that you start fulfilling those goals. It's something Eweka recommends for everyone, regardless of financial situation, age, or employment status.

"If you have not had a financial plan done yet, you should get a plan," she said. "You want to have a plan, and then you want to adjust the plan periodically — the plan should live and breathe with you."

In some cases, you might have to hire someone, but other financial providers offer financial planning help free of charge (like if you have a SoFi account).

12. It can be hard to tell how your retirement investments are doing, and that’s okay — keep in mind that you’re playing the long game.

Evie Carrick

Because everyone has a different risk tolerance, everyone's IRA will perform differently. There is no average or magic number you should be looking for. The secret is to put your money in and ride out the inevitable ups and downs.

13. If you had a 401(k) at a previous job, you can either leave the money where it is or roll it over into an IRA.

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"I am definitely on the side of consolidation," said Eweka, but notes that if you have or might have issues with creditors, you might want to leave your 401(k) where it is. "The 401(k) and the IRA have different protections from creditors in many states."

14. And before you say, "What about Social Security?" keep in mind that Social Security typically covers less than half of what you're used to making and might be reduced in the future.

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Eweka explains it like this:

"If you're making $50,000, your Social Security will be about $20,000 when you retire — but you earned $50,000, and you're not used to living off of $20,000. And if you assume that that [Social Security] percentage might be reduced in the future, your income in retirement and your assets have to provide $32,000. You need to plan how to supplement and cover the majority of that cost in retirement. So Social Security will help, but the majority of your sources of retirement are going to come from you and what you save and what you invest and what you plan for."

In short, you will probably need to cover your own butt, and one of the easiest ways is to start putting money in some kind of IRA.