About 75 percent of Americans have done at least a little saving for retirement. Yet only 55 percent of full-time employees in America contribute to an employer-sponsored 401(k) or 403(b) retirement plan, according to reports by the Employee Research Benefit Institute.

Although some employees choose not to contribute their employer’s 401(k) plan, other employees would love to invest in a 401(k) plan but can’t; their employer doesn’t offer one. In some cases, an employer may simply choose not to offer a 401(k) plan. Or, you may not be eligible for the plan because you either work part-time or haven’t worked long enough to qualify.

What’s the big deal about a 401(k) anyway?

Among ways to save for retirement, the 401(k) plan is the undisputed king. That’s because:

  • Employees can contribute with pre-tax dollars, and earnings are tax-deferred
  • In 2023, employees can save up to $22,500 in a 401(k) compared to just $6,500 in an individual retirement account (IRA)
  • There are no income limits for making 401(k) contributions
  • Many employers provide matching contributions

So what if you’re not eligible?

If you don’t work for an employer that offers a 401(k) plan, your retirement options are limited. The IRA is going to be your best friend, as long as you don’t earn more than IRA income caps. You can choose to contribute pre-tax dollars to a traditional IRA and pay taxes on withdrawals in retirement or contribute post-tax dollars to a Roth IRA from which you can make tax-free withdrawals in retirement.

Again, you can only put in up to $6,500 per year. There is, however, some good news: If you forgot to make IRA contributions throughout the year, you can count IRA contributions you make up to April 15th towards the previous tax year.

Or you’re self-employed?

If you’re self-employed, a SEP-IRA may allow you to save more than $6,500 a year for retirement. You can save up to 25% of your annual profit with a total contribution limit of $66,000 in 2023.

Solo 401(k)s are also an option for the self employed. These work similarly to your 401(k) at work and as an employee you can contribute up to $22,500 if you are under 30 and $30,000 if you are over 50 in 2023. The company can then contribute up to 25% of your compensation (this might be business profits) after deducting for half your self employment taxes and your own solo 401(k) contributions.

Unfortunately, that wraps up the tax-advantaged retirement savings vehicles. If you’ve maxed out an IRA and are still thirsty for more retirement savings, you’re going to have to look to regular old taxable brokerage accounts.

If you want to set up an automatic investment plan, look to no-load mutual funds to save on fees. If you’re going to invest a lump sum, exchange-traded funds (ETFs) are a good bet.

Finally, you may come across annuities as an alternative way to save for retirement, especially if you enlist a financial advisor working on commission. With annuities, the insurance company essentially takes on the risk of investing your money for you. You make regular contributions until you retire, at which time the insurance company guarantees you a certain payout. Although hey can seem like a good deal when spun by a master salesman, the fees woven into them usually negate any benefits they offer.

What about you? Do you save for retirement without a 401(k) and in addition to an IRA? How?

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About the author

Total Articles: 48
David Weliver is the founder of Money Under 30. He's a cited authority on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.