Saving for Retirement Without a 401(k)

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.

 

certified financial planner Callie Jowers wears maroon and gold zipper dress with hands clasped together, posing for professional photo in an office Callie Jowers, CFP ®, is an Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Callie is a graduate of the University of Alabama, is currently pursuing a Master of Accounting at the University of Alabama at Birmingham, and is a Certified Financial PlannerTM.

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