What to Do if Your Job Doesn’t Offer a 401(k)

By Ellevest Team

A lot of people use 401(k)s to invest for retirement, which is why you hear so much about them. (Guilty.) But actually, more than one-third of working adults don’t have access to a 401(k) at their job — including many part-time workers, self-employed people, and people whose employers just don’t offer them.

What to Do if Your Job Doesn’t Offer a 401(k)

If you’re in that situation, your employer might offer a different kind of retirement plan, like a payroll deduction IRA or a SIMPLE IRA. But if not, no sweat — you aren’t out of luck. Here are some other types of accounts you can use to build up that nest egg for Future You instead.

An individual retirement account (IRA)

Unlike 401(k)s, IRAs aren’t tied to your employer. Anyone who has earned income can set themselves up with an IRA and start investing for retirement. Which is great news, because they come with some sweet tax benefits.

There are two main kinds of IRA — traditional and Roth — and you can use either or both (although there are income limits on the Roth). With a traditional IRA, you put (sometimes) tax-deductible money in today and then pay the taxes when you withdraw it in retirement. With a Roth, it’s the opposite. You put money in after paying taxes today, it can grow tax-free, and then you get to withdraw it tax-free, too. (Here’s a deeper explanation of the differences between a Roth and traditional IRA.)

The most you can put into an IRA is $6,000 a year (or $7,000 if you’re 50 or older). That’s the limit across both Roth and traditional accounts (meaning you can’t put $6,000 into each of them, just $6,000 total).

So that’s a great place to start, even though you might not be maxing it out just yet. You can work your way up over time. But as you get closer to the age you want to retire, even investing the max on an IRA may not be enough to fund your entire retirement. Which brings us to …

A taxable investment account

Once you’ve contributed enough to max out your IRA (high-five), then you can keep going with a “normal” taxable investment account, sometimes called a brokerage account. They don’t come with the same special tax benefits, but that doesn’t mean you can’t use them to invest for retirement.

There are also no contribution limits. Which begs the (good) question — how much should you contribute to your taxable account after you’ve maxed out your IRA?

The short answer: Enough to get you on track for the retirement you’re dreaming of (assuming you want to retire). To figure that out, first you have to do the dreaming part. What does that goal retirement look like? Do you want to move somewhere warm? If so, what’s the cost of living there? What will you do each day, and how much do those things cost? Will you work part time? If so, how much income will that add? And so on. Then you can start to figure out how much you’ll need each year, and that can lead to how much you should aim to have saved total.

Ellevest’s online investing platform can also help you figure out if you’re on track. We use details from your real life — like your salary, education, current savings, and, importantly, gender — in order to project how much we think you’ll be making per year right before you retire (including inflation). Then we calculate how much you’ll need in order to pay yourself 90% of that salary per year after you retire.

Other investing platforms might aim you lower than 90%, but we take a conservative approach on purpose. That’s because women live longer, on average, so we need to have more saved. Plus we’re guessing you probably want to have enough wiggle room for things like unexpected medical costs.

More options if you’re a freelancer or entrepreneur

If you’re the boss of you, then you might have a few more choices available to you when it comes to saving for retirement.

One is a SEP IRA, which is like a regular IRA above, except the employer (in this case, you) makes all the contributions. You just have to be 21 years old, earn at least $600 a year, and have worked for your company (you) in three out of the last five years. The great part about SEP IRAs is that they have high contribution limits — up to 25% of earnings or $61,000, whichever is lower. (Pssst … you can open a SEP IRA with Ellevest.)

There’s also a solo 401(k), aka a “one-participant 401(k).” With this kind of account, think about it like you’ve split yourself into two “people”: the employer and the employee. The employer side of you can contribute up to 25% of earnings, while the employee side of you can contribute up to $20,500 ($27,000 if you’re 50 or older). The total limit is still $61,000, but depending on your income, this weird split might actually let you contribute more with a solo 401(k) than a SEP IRA.

So, no need to let a lack of a 401(k) get you down. You can still take care of Future You and build that dream retirement — starting today.


© 2020 Ellevest, Inc. All Rights Reserved.

You may or may not have noticed that we linked to for an explanation of solo 401(k)s. FYI, NerdWallet, Inc (“Solicitor”) serves as a solicitor for Ellevest, Inc. (“Ellevest”). Solicitor will receive compensation for referring you to Ellevest. Compensation to the Solicitor will be $20 per membership activated. You will not be charged any fee or incur any additional costs for being referred to Ellevest by the Solicitor. The Solicitor may promote and/or may advertise Ellevest’s investment adviser services. Ellevest and the Solicitor are not under common ownership or otherwise related entities.

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