How to Save for Retirement Without a 401(K)

It’s possible to retire comfortably if you don’t have a 401(k) plan, but it’s hard to beat this type of plan if you’re saving for retirement. The high contribution limits and employer match can really boost your savings. However, about one-third of workers in the U.S. don’t have access to work-based retirement plans, and many employers don’t offer a match. If you’re one of them, here are your options.

Individual Retirement Accounts (IRAs)

An individual retirement account (IRA) is a tax-advantaged savings vehicle that holds investments you can choose. There are two main types of IRAs: traditional and Roth. The biggest difference between them is when you pay taxes on your contributions and the account’s earnings.

Traditional IRAs

You get an upfront tax break with a traditional IRA. You can deduct the money you contribute from your income when you file your annual tax return. The money in the account then grows tax-free. But your contributions are taxed as ordinary income when you begin taking money out during retirement.

Roth IRAs

A Roth IRA doesn’t provide an upfront tax break but qualified withdrawals are tax-free. These are withdrawals taken after you reach age 59½ from an account that has been established for at least five years. This can be a huge advantage if you expect to be in a higher tax bracket during retirement.

IRA Contribution Limits

The biggest drawback to saving in a traditional or Roth IRA is the low contribution limit. There’s also an income limit based on your modified adjusted gross income (MAGI) and how you file your taxes. For example, if you’re married and filing jointly for tax year 2024, the phase-out begins at an income of $230,000, and contributions to a direct Roth are prohibited at an income of $240,000.

Annual contribution limits are the same for traditional and Roth IRAs if you meet the income limits. You can contribute up to $7,000 for the 2024 tax year or up to $8,000 if you are age 50 or older. You have until the tax filing deadline in April 2025 to make contributions for 2024.

Health Savings Accounts (HSAs)

A health savings account (HSA) is designed to pay for health care expenses, but it can be a valuable source of income when you retire, as well.

Your HSA contributions are tax-deductible. They lower your tax bill in the year you make them. And withdrawals are tax-free if you use the money to pay for health care expenses, including dental and vision care.

HSA Contribution Limits

• The maximum HSA contribution limits in tax year 2025 are:
• $4,300 for individuals
• $8,550 for family coverage

These limits are up from $4,150 and $8,300, respectively, in 2024.

Unlike flexible savings accounts (FSAs), HSAs don’t have a use-it-or-lose-it provision. Money in the account at the end of the year can stay in the account indefinitely. You could end up with a tidy sum in retirement if you make the maximum contribution each year—assuming you stay healthy.

HSA Withdrawals in Retirement

You can withdraw money from your HSA tax-free and penalty-free for qualified medical expenses.

You can also withdraw HSA money for things other than health care without incurring a tax penalty in retirement.

You can use HSA funds for any reason after you reach age 65 but you’ll pay ordinary income tax on the distributions.

Taxable Investment Accounts

A taxable investment account, such as a non-retirement account or brokerage account, is another option to consider if you max out an IRA and/or an HSA. These accounts don’t offer any tax advantages (such as deductible contributions or tax-free growth) but you have a shot at earning better returns than you would holding your extra cash in a regular savings account.

You can invest as little or as much as you like in a taxable account and put your money into stocks, bonds, mutual funds, exchange-traded funds (ETFs), and/or real estate investment trusts (REITs). Just remember that earnings from these investments are subject to capital gains taxes. Be sure to plan for how this could affect your spending power in retirement.

Tax-Deferred Annuities

Annuities offer another way to reach your retirement savings goal. They’re offered through insurance companies and they provide tax deferral coupled with varied investment opportunities. Annuities are available with:

• Fixed interest rates
• Indexed interest rates based on the performance of a specific index, or
• Variable rates that are tied to the performance of the underlying investments

The money you stash in an annuity grows tax-deferred but it becomes taxable when you withdraw it in retirement. Annuities can provide a guaranteed income stream for a certain number of years or a lifetime.

However, annuities do come with high fees, so weigh the pros and cons carefully.

Real Estate Investments

Another way to save for retirement is through real estate investments. You may already have access to the real estate sector through a mutual fund, ETF, or REIT if you have an IRA or a brokerage account.

You can also buy real estate outright to generate an income stream during your retirement years. You can live in one section and rent out the other if you invest in a multi-family home. This effectively reduces your total living expenses while you’re paying down the mortgage.

You can later decide to continue to rent out the property and receive a steady income from rent or you can sell the home and use the proceeds for living expenses or other investments. Ideally, the property will have appreciated.

Small Businesses

Another option to help you reach your retirement goals is to invest in a small business. This doesn’t necessarily mean becoming a business owner. You can invest in an established company as a silent partner if you don’t want to drive the ship.

Small business profits aren’t capped and the potential return on investment (ROI) is higher than other alternatives whether you choose entrepreneurship or investing. Of course, these investments come with a great deal of risk. There’s no guarantee that the time or money you invest in a small business will generate a substantial return over time.

The Bottom Line

A 401(k) can be a powerful tool to fuel your retirement savings efforts, but all is not lost if you don’t have one. You can take advantage of other savings and investment plans to enjoy the kind of retirement you want, from IRAs to HSAs. Start saving as soon as possible, and be mindful of contribution and income limits, as well as the tax rules.