How to Save for Retirement When You Don't Have a 401(k)

Self-employed workers have savings plan options. And if you move fast, you can still contribute for the 2021 tax year.

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Most Americans have seen their retirement plans rebound since the start of the pandemic two years ago. But there’s a sizable group that is still struggling to catch up.

Those in the latter group tend to lack a company retirement plan like a 401 (k).  Many are freelancers, who aren’t eligible for company benefits, and self-employed workers.

But you don’t really need an employer to build a retirement plan. And the sooner you start, the better. The deadline for contributions to an individual retirement plan, like an IRA, is April 18 for the 2021 tax year.

Overall, 79 percent of Americans say they are confident they’ll be able to retire when and how they want, but 1 in 4 are now less confident in their plan than they were two years ago, according to a recent survey (PDF) by Fidelity.

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As other studies have found, participation in a retirement plan is closely linked to workers’ confidence. Some 78 percent of those covered by a 401(k), an IRA, or a pension are at least somewhat confident about retirement, compared with just 43 percent of those who aren’t, a 2021 study (PDF) by the Employee Benefit Research Institute (EBRI) found.

“For most workers with 401(k)s, there’s an advantage of a company match,” says Craig Copeland, senior research associate at EBRI. “Another big effect is automatic saving—the money comes out of the paycheck before it’s spent.”

But half of American workers lack an employer plan. Many workers these days are freelancers, or they work part-time and don’t qualify for a plan. Others work for small businesses that lack retirement benefits.

The good news is that it’s easy for freelancers and other workers who lack employer plans to set up their own version of a 401(k), which can help save on taxes as well as build savings. You can find these retirement-account options offered at most fund companies and brokerage firms at low cost. Here are three popular plans to consider.

Traditional or Roth IRA

If you’re just starting out, you may want to stick to basics: a traditional or Roth IRA. You can put in as much as $6,000 for the 2021 and 2022 tax years (plus an additional $1,000 if you’re 50 or older). With a traditional IRA, your contributions may be deductible, and the growth is tax-deferred.

If you’re not covered by an employer plan, your traditional IRA contributions are deductible, with no income limits. But if you have a spouse covered by a plan, income limits may apply. For more details, check the IRS website.

With a Roth IRA, your contributions are made on an after-tax basis, but your money will grow tax-free, and you’ll pay no taxes on your distributions as long as you follow the withdrawal rules. (Generally, you must have held the account for five years and have turned 59½ or older.) Plus, you can take out your own contributions anytime without paying tax.

Roth IRAs do have income limits. Those who are married and filing jointly must have modified adjusted gross incomes below $198,000 for 2021 ($204,000 for 2022) to make a full contribution.

Which IRA is right for you? A lot depends on your age and current income. Young people, for instance, are likely to have smaller incomes and thus pay less in taxes than they will when they get older.

“If you think that your taxes will be higher later than they are today, it makes sense to favor a Roth IRA,” says Ed Slott, a CPA and founder of 

Conversely, those with higher incomes might want to get the immediate tax deduction with a traditional IRA. (This calculator can help you choose between a Roth and a traditional IRA.)

It’s impossible to know with any certainty how your taxes might change years from now, which is why many financial advisers suggest hedging your bets. Contribute to both types of IRA, though you’ll need to keep your total contributions under this year’s $6,000 (or $7,000) limit. And revisit your choices periodically as tax rates and your income change.

Whichever IRA you choose, set up an automatic investing plan to ensure that your savings really happen, which is a key advantage of an employer 401(k). At most fund companies and brokerages, it’s simple to do this online. Just enter your bank information, how frequently you want to invest, and the amount of the transfer.

“If you’re not sure about your cash flow, it’s fine to start out with small amounts, even $100 a month,” says Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Md. “You can increase the amounts later, when you have a better feel for your income.”


If you’re working for yourself or have a part-time job, you can open a Simplified Employee Pension (SEP) IRA. With these plans, you can get a deduction on your contribution, which will grow tax-deferred. As with regular IRAs, SEPs are widely available at brokerages and fund companies.

If you have incorporated as a business, the overall maximum you can stash away in a SEP is 25 percent of your compensation (PDF), up to $58,000 in 2021 ($61,000 for 2022).

For those who are unincorporated, the same max applies, but the percentage of income you can contribute is reduced by deductions, including half the self-employment tax (the FICA tax). For example, someone earning $100,000 could put in as much as $18,587 this year. (Try an online calculator, such as this one, to help figure out your SEP contribution.)

These plans are highly flexible, which makes the SEP an appealing choice if you don’t have a steady income stream.

“It’s the perfect plan for procrastinators,” Cheng says. You don’t have to make a contribution every year.  And you have until October to put in the money, if you file for an extension.

Individual 401(k)

For sole proprietors, an individual 401(k), also known as a solo 401(k), allows you to set up your own retirement plan with many of the same benefits as a large-company 401(k). (To qualify, you can’t have any employees other than your spouse.) As with an employer plan, you can have contributions deducted from your paycheck and invested tax-deferred in the funds of your choice. Some providers offer a Roth 401(k) option.

If you have the savings, you can stash away even more money in a solo 401(k) than you can in a SEP-IRA, depending on your income level. That’s because you can contribute two ways, both as an employer and as an employee, up to $58,000 in 2021, or $64,500 if you’re 50 or older. For 2022, the max bumps up to $61,000 and $67,500, respectively.

Say you earn a $100,000 net profit from your business. As an employee, you can contribute up to $20,500 for 2022 ($27,000 if you’re 50 or older), or up to 100 percent of compensation, whichever is less. Plus, as the employer, you can stash away a portion of your profits after deducting the self-employment tax. In total, a younger saver could put away as much as $39,087 vs. $18,587 in a SEP. (To see how much you can contribute to a solo 401(k), try this calculator.)

Unlike regular 401(k)s, sole proprietors in most states have until April 18, or their tax return deadline, to make 2021 plan contributions to these plans, says Slott. But to get this extra time for funding employee contributions, you must have made a deferral election by Dec. 31, 2021.

There may be a bit more paperwork involved with an individual 401(k); plans with more than $250,000 in assets are generally required to file a Form 5500 with the IRS. But most providers can do that for you, often as part of the basic service fee.

With a solo 401(k), you can also borrow from your plan—generally you can take out as much as 50 percent of the balance up to $50,000—if your plan offers that feature. That’s a welcome backstop in an emergency. But as with a regular 401(k), your goal is to leave that money alone to grow until you’re ready to tap it in retirement.

Photo of CR Money editor, Penny Wang.

Penelope Wang

I cover everything from retirement planning to taxes to college saving. My goal is to help people improve their finances, so they have less stress and more freedom. What I enjoy: walks through the city, time with family, and reading mysteries, though I rarely guess who did it. Follow me on Twitter (@PennyWriter).