I Don’t Have a 401(k) and I Don’t Care. Here’s Why

A 401(k) can be a great retirement savings tool if you have access to one, especially if your employer matches some of your contributions. But if your company doesn’t offer one, there’s no need to worry. I’ve been saving for retirement without a 401(k) for years, and I’m doing just fine. Here’s how you can do the same.

401(k)s aren’t the only retirement accounts worth considering

Since I’m self-employed, I don’t have access to a 401(k). But I’ve still managed to save a lot of money over the years with my SEP IRA. This is a special type of retirement account only available to self-employed workers, and while it doesn’t come with an employer match, it has other valuable benefits.

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First, contribution limits can be higher than 401(k) limits. In 2022, you may only contribute up to $20,500 to a 401(k), or $27,000 if you’re 50 or older. With a SEP IRA, you can contribute up to the lesser of 25% of your net self-employment income or $61,000. So far, I haven’t been eligible for that maximum contribution, but I still have plenty of room to put away a lot of money for my future.

My SEP IRA also puts me in control of what I invest in. With a 401(k), you usually have to choose from a short list of investment options your employer has selected. Sometimes, these may not suit you. They might carry high fees or be too conservative or risky for you. There’s not much you can do about that, other than to talk to your employer about adding more options. But with my SEP IRA, I can invest in just about anything I want, and that also gives me control over what I’m paying in fees.

Apart from missing an employer match, I really don’t care about not having a 401(k). But that’s easy for me to say when I qualify for these special self-employed retirement accounts. However, I think even if I didn’t, I’m pretty sure I could still save enough without a 401(k).

How I’d save if I wasn’t self-employed

You can use a self-employed retirement account for some of your savings, even if you just have a side hustle bringing in a modest amount of money each month. You just have to be mindful of the annual contribution limits. But if you aren’t self-employed or you don’t want to open one of these accounts, you could always stick to a regular IRA.

You can contribute up to $6,000 to an IRA in 2022, or $7,000 if you’re 50 or older. And you can choose between traditional IRAs and Roth IRAs. Traditional IRAs are tax-deferred, which means you get a tax break on your contributions this year in exchange for paying taxes on your withdrawals later. Roth IRAs require you to pay taxes on your contributions upfront, but then your money grows tax-free afterward.

This ability to choose when you want to pay taxes, along with the freedom to invest how you want, can help you design a portfolio that suits you better than what you could get with a 401(k) through your employer.

Another option worth considering is a health savings account (HSA). Though they’re designed for medical savings, these accounts also make great homes for your retirement funds. They’re similar to a traditional IRA in that your contributions reduce your taxable income for the year, but they also offer tax-free medical withdrawals at any age. You can make non-medical withdrawals as well, but you’ll owe taxes on these plus a 20% early withdrawal penalty if you’re under 65.

You can contribute up to $3,650 to an HSA in 2022 if you have an individual health insurance plan with a deductible of $1,400 or more. Families with a health insurance plan that has a deductible of $2,800 or more can contribute up to $7,300 this year. And adults 55 and older can add an extra $1,000 to these limits.

If you decide to use an HSA for retirement savings, make sure you choose a provider that will allow you to invest your funds. You don’t want to leave your money sitting in a savings account where it earns next to no interest. And you also want to avoid withdrawals, even for medical reasons, if you can.

These two accounts are great places to begin if you don’t have access to a 401(k) or self-employed retirement plan. And if you gain access to a workplace retirement plan in the future, you can always reevaluate where you keep your savings. The most important thing is to set aside money somewhere every month if you’re able to, so you can keep moving toward the retirement you want.

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