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How to Save for Retirement Without an Employer Savings Plan


The sooner you can start saving for your retirement, the better. Plus, saving for your retirement is often made a lot easier with the help of an employer savings plan. However, not everyone has access to a 401(k), 403(b) or other employer savings account. If you’re self employed or work for a small business, chances are a retirement savings plan won’t be included in your benefits. Don’t worry, though! There are a number of ways you can save for retirement.

How to Save for Retirement Without a 401(k)

You should first figure out how much to save for retirement. Without your employer, you will have to manually set aside a portion of your income toward your retirement fund. Typically, the good rule of thumb has you saving 10% to 12% of your salary.

If you can’t afford to set aside that amount, no need to worry. You can start saving with a smaller percentage and try to grow from there. (A savings calculator can help you see how this money will grow.) It’s good to remember that saving anything is better than saving nothing. But it can also help if you make a plan to contribute every raise or bonus to your retirement fund. Saving any less than this will not yield the kind of return you’ll need to actually retire.

While you don’t want to save too little, you also can’t save too much. There are federal contribution limits that you have to meet when it comes to retirement accounts. This means that you can contribute up to a certain amount for 401(k)s, IRAs and so on.

Knowing how much you need to save will help you find the right kind of savings account. The same goes for how much the IRS allows you to save each year. Without an employer to help you, you’ll need to navigate these accounts and rules on your own or with a financial advisor. Below are a number of savings accounts you can open to save for retirement without a 401(k).

Individual Retirement Accounts (IRAs)

employer savings plan

An individual retirement account, or IRA, works without an employer’s sponsorship, helping employees who don’t have access to an employer 401(k) plan. You can choose between a few different types of IRAs.

A traditional IRA allows you to contribute pre-tax money. This means that every dollar you contribute reduces your taxable income for that year. You can begin withdrawing the funds at the age of 59 ½. If you make any early withdrawals, you’ll face a 10% penalty of the amount withdrawn. Plus, since your funds are pre-tax money, you will then pay taxes on those funds when you withdraw.

A Roth IRA allows you to withdraw your funds in retirement without paying income tax on it. That’s because the money was contributed after you already paid taxes on it. So you can’t deduct your contributions to a Roth IRA. This benefits people who expect to be in a higher tax bracket in retirement. You can withdraw from a Roth IRA at any time as long as you’ve had the account for at least five years and you’re 59 ½. You can also contribute to a Roth IRA at any time.

A SEP (simplified employee pension) IRA is specifically tailored toward self-employed workers and small business owners. You can open a SEP IRA if you are the sole proprietor, a business owner in a partnership or earn self-employment income, even as a side gig. Like a traditional IRA, SEP IRA contributions qualify as tax-deductible. You must also begin taking required minimum distributions (RMDs) by age 70 ½. Any withdrawals before age 50 ½ will trigger a 10% penalty.

A SIMPLE (savings incentive match plan for employees) IRA is another type of traditional IRA. This IRA is geared toward small businesses with 100 or fewer employees. This account would require an employer’s participation, so it’s worth bringing up to your employer. You qualify for a SIMPLE IRA if you have received at least $5,000 in compensation in the previous two calendar years and expect at least that much in the present calendar year. You contribute pre-tax dollars through “elective deferrals,” either as cash or a salary reduction contribution. Plus, the IRS requires your employer to make a contribution on your behalf as either a dollar-for-dollar match of up to 3% of your salary or a flat 2% of pay.

Self-Employed 401(k)

If you’re a sole business proprietor without any employees, or your one employee is your spouse, you can choose to open a self-employed 401(k). Also called a solo 401(k), these accounts carry the same limitations and rules as a regular 401(k). For one, you can only start taking withdrawals after age 59 ½. Early withdrawals trigger a 10% penalty.

Because you are both the employer and the employee, you’re able to set aside more than you could with an employer sponsored 401(k). You can deduct your self-employed 401(k) contributions as a business expense. However, that means you’ll have to pay taxes on those funds when you make your withdrawals in retirement.

Other Savings Accounts

One other option you have is a taxable investment account. Of course, you’ll have to pay taxes on these returns. However, you can lower the taxes you pay by funding this account with investments taxed at a lower rate. Typically, people open taxable investment accounts after they’ve maxed out their IRA contributions. That allows you to strategize and maximize your investment savings.

Finally, you can choose to contribute to a regular savings account or certificate of deposit (CD). You’ll need to be careful with savings accounts, though, if you’re prone to withdrawals. Savings accounts typically allow for six withdrawals per statement cycle. Anything over will incur a penalty. However, since you’re saving for retirement, you shouldn’t be making any withdrawals before you’ve retired. It may help to create a separate savings account specifically for your retirement fund.

CDs don’t offer as much withdrawal temptation since they operate according to set term lengths. Each financial institution will offer different term lengths, but they tend to vary from three months to five years. The longer the term is, the higher the interest rate will be.

You typically cannot make any deposits or withdrawals after your initial deposit. You have to wait until the end of the term length, or maturity date. Only then can you renew the CD, withdraw part or all of the funds or deposit more money.

How to Fund a Retirement Account

So you know how much you need to save for retirement and which accounts you can open. Now you have to fund those accounts without your employer’s help. The first step you can take is to set up direct deposit. You can set it so that a portion of your paycheck automatically deposits into your IRA or other account. You may also set up automatic transfers from a bank account to your retirement savings account. That way, you can set it and forget it.

You may also want to set aside any tax refunds, windfalls or bonuses you get. It’s easy to deposit those funds into an account right away. That way, you can pretend that you never had access to that money anyways.

It’s important to know that putting money into your IRAs or solo 401(k) isn’t all you need to do. You’ll also need to choose your investments. Luckily, you won’t be limited to the funds your employer has selected to provide. A good place to start is with an S&P 500 index ETF and an intermediate term bond index fund. You’ll need to make sure your investments are well-diversified and optimized. You don’t need to do this all on your own, though. If you need help, there are a ton of financial advisors or robo-advisors out there who can help you manage your accounts.

The Takeaway

employer savings plan

If your employer doesn’t offer a 401(k), there’s no need to worry about your retirement savings. You’ll just need to take the initiative to get it off the ground. You have a number of account options to choose from, like a Roth IRA or a solo 401(k). Plus, you can easily set up direct deposit or automatic transfers to make funding each account as convenient as possible.

Tips for Saving for Retirement

  • If you’re truly not sure where to begin when it comes to retirement savings, you may want to seek the help of a financial advisor. A financial advisor can provide a holistic look at your finances and retirement goals. They can even help you create a long-term financial plan. At the very least, you can use their advice to get started on your savings.
  • Do you have a 401(k)? It can help to know what that account will be worth once you reach retirement. That way you can boost your savings accordingly if you think you’ll need more money in retirement.
  • It can also help to be familiar with the taxes you’ll face in retirement. This can largely depend on where you live due to property and income taxes. Checking the retirement tax friendliness of your chosen retirement spot will help you save more accurately.

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