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How to Save for Retirement Without A 401(k)

Posted December 23, 2021

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If you find yourself working for a smaller employer, there’s a chance that your employer does not offer a robust benefits package. The lack of benefits might leave you wondering how you are supposed to save for retirement without a 401(k).

It’s essential to understand what a 401(k) is to know why they have become the go-to retirement account of choice for most investors.

What is a 401(k)?

A 401(k) plan is a retirement savings plan offered by many American employers, giving employees tax-savings benefits and the needed funds to retire later in life.

Employees can choose to defer income through a 401(k) by automatically deducting a certain percentage from each paycheck into the employer-sponsored 401(k) plans. This money is left untaxed and often untouched until retirement.

However, not all employees have access to employer-sponsored 401(k) plans. According to a March 2019 study by the U.S. Bureau of Labor Statistics, only 60% of American workers had access to employer-sponsored benefits. Only 43% of those workers took advantage of those contribution plans.

Instead of offering a 401(k), some employers will offer higher starting salaries, better health and vision benefits, or more paid time off. All of that is great, but one question remains— how do you save for retirement without a 401(k)?

How To Save For Retirement Without a 401(k)

If you want to start saving for retirement but your employer doesn’t offer a 401(k), opening an individual retirement account (IRA) is the most common solution. IRAs are not associated with any employer and can be opened by any individual.

Traditional IRA accounts function as long-term savings account. Because you are depositing pre-tax dollars into the account, you will typically get a tax deduction on your contribution and later pay income tax when the money is withdrawn during retirement.

However, if you open a Roth IRA, it works differently. While it’s still functioning as a long-term savings account, Roth IRAs are funded with after-tax dollars, meaning contributions are not tax-deductible. Because of this, once you enter retirement, the money you withdraw will be tax-free.

Although opening a traditional IRA or a Roth IRA is an excellent alternative to a 401(K), there are limitations.

The Limitations of an IRA vs. 401(k)

The most significant benefit of a 401(k) is that most companies will offer a matching program with 401(k)s that you won’t receive with an IRA or Roth IRA. This is free money to the partcipant.

The second limitation is that 401(k) contribution limits are much higher than those for an IRA. Individuals can only contribute $6,000 annually to an IRA, whereas individuals under the age of 50, starting in 2022, can contribute $20,500 to a 401(k).

Small Business Owners

If you are a small business owner or independent contractor, you have some additional ways to save for retirement and substantially lower your tax liability each year. Check out this post on retirement plans for small business owners.

How Thayer Financial Can Help

Because of these limitations, it’s also important to implement other retirement savings strategies that will help you reach your financial goals and give you the ability to retire comfortably. Thayer Financial is ready to advise you on your retirement options and help you create a financial plan from the perspective of comprehensive financial planning to enjoy every moment of your retirement. Thayer Financial is your dedicated resource for fee-only, fiduciary advice as financial advisors in Hickory, North Carolina. Schedule an appointment or call us today.


Thayer Financial, L.L.C. (“Thayer Financial”) is a registered investment adviser offering advisory services in the State of North Carolina and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This website’s presence on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Thayer Financial in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or according to an applicable state exemption.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Thayer Financial, L.L.C., unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.


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