Investment options for those who don’t have access to an employer-sponsored 401(K)


Over the past 40 years, 401(k) plans have become the most common type of retirement plan offered by private employers. As of September 2021, there was $7.3 trillion worth of assets being held in 401(k) plans and about 60 million active participants, according to the Investment Company Institute.

Even amid such progress, however, many Americans still do not have this type of employer-sponsored retirement savings account. But that doesn’t mean you should forgo retirement savings altogether. There are many other ways to set aside money to ensure you’re prepared for the future.  

Many Americans still do not have a 401(k) plan 

About half of all American households have access to a work-based retirement plan, according to a report from the Stanford Center on Longevity. There’s a variety of reasons for this. In addition to the fact that there’s currently no legal requirement that employers offer retirement benefits, such as a 401(k) plan, many Americans don’t have access to these plans because they are self-employed or are contract workers.  

If you’re in this situation, the good news is there are other options. While funding your own retirement can be challenging, it’s still important to save money for the future and to start doing so as early as possible so that you have time on your side—and the advantage of compounding interest over years of saving.

“When it comes to retirement savings, there are a host of savings vehicles available to individuals without an employer-sponsored plan, the self-employed, or even those looking to save outside of a traditional employer-sponsored 401(k),” says Sri Reddy, senior vice president of retirement and income solutions at Principal. 

4 investment options to prepare for retirement 

A few of the most popular account options include traditional or Roth individual retirement accounts (IRAs), brokerage accounts, a SEP IRA, or even a Solo 401(k). Each type of account has advantages and disadvantages that will vary based on your unique financial situation and needs.

1. IRA accounts 

As the name implies, IRAs are not tied to an employer. They are retirement investment accounts funded on your own that offer tax-advantaged status, which we’ll explain below. The most common choices are a traditional or a Roth IRA.

Traditional IRAs help you build a retirement nest egg by allowing account holders to make tax-deductible contributions. “You can deduct IRA contributions from your taxes in the year you contributed, which reduces your taxable income,” explains Reddy. 

The money in this type of account is also allowed to grow tax-deferred and is not taxed until you make withdrawals. When you do start tapping into your traditional IRA funds, the distributions will be taxed based on your income bracket at that time. You can begin withdrawing the money penalty-free at age 59 ½. 

With a Roth IRA, you pay taxes on contributions now, which can offer some benefits. For instance, because you’ve already paid taxes on the money, distributions are tax-free. But that’s not the only benefit. “Contributions can be distributed at any time since you’ve already paid taxes on those dollars,” says Katherine Tierney, senior retirement strategist for Edward Jones.

However, if you take distributions too early—prior to 59 ½—you may be subject to taxes and penalties. This is also the case if you start taking money out of a Roth that’s been open for less than five years.

There are, however, some distinct differences when using a Roth to prepare for retirement. Most importantly, there are income limits on those who are eligible to use a Roth. For 2023, your income must be below $228,000 for a married couple and $153,000 if you’re single in order to be able to use a Roth IRA, according to the IRS.

Whether using a traditional or a Roth IRA, it’s also important to understand one of the primary drawbacks of this type of account: low annual contribution limits. The maximum yearly contribution limit for 2023 is $6,500 for individuals below age 50, or $7,500 if you’re age 50 or older, according to the IRS.

2. Traditional taxable investment account

Often referred to as a brokerage account, a taxable investment account can also be an option to save money for retirement when you don’t have access to a 401(k). Using a brokerage account allows you to grow money for retirement by assembling a portfolio of assets. This can include stocks, bonds, and mutual funds. 

There are many benefits to using a traditional investment account to save for retirement including the ability to select whatever types of assets you want. Additionally, there are no income limits when opening a brokerage account—meaning unlike Roth IRAs they are available to anyone, no matter what your annual income may be.

“While brokerages have limited tax benefits, they have several advantages in that they offer fewer restrictions and more flexibility than vehicles like IRAs,” says Reddy. “With a brokerage account, you can withdraw money at any time with no tax or penalty. This liquidity is among the best reasons an investor might be interested in keeping assets within a brokerage. Further, if you’ve maxed out other non-taxable contributions, such as an IRA, a taxable investment account like a brokerage enables you to save more with little limitation.” 


For those who are business owners, self-employed, freelancers, or contract workers, a Simplified Employee Pension (SEP) IRA plan is another option. 

“SEP IRA plans offer a range of benefits,” says Tierney. “They are relatively simple and inexpensive, do not require special IRS filings or administration, are tax-deductible to the employer, and annual contributions to the plan are not mandatory.”

SEP IRAs generally follow the same investment and distribution rules as traditional IRAs. This means earnings are tax-deferred, and distributions are taxed as ordinary income. In addition, distributions can be taken at any time. However, there will be a 10% penalty on pre-tax dollars if you draw funds before your 59 ½ and you do not qualify for any penalty exceptions. 

“Generally, individuals must begin taking a required minimum distributions (RMD) from their plan in the year they turn 72 and each subsequent year,” adds Tierney. “For SEP IRAs, there is no exception to the RMD rules for individuals who have not retired.”

4. Solo 401(k)

Finally, a solo 401(k), sometimes referred to as a one-participant 401(k), may be worth considering if you operate a business that does not include any employees or the only other employee is your spouse.

“A solo 401(k) can be an excellent option if you have no plans to hire other employees and are treating the savings as just for yourself,” says Reddy. “With these types of plans, you can save up to $22,500 in 2023 as an employee deferral, with an additional 25% as an employer contribution.”

Benefits of this account include contributions that you make as the “employer” being tax-deductible for your business and earnings grow tax-deferred until withdrawn.

The takeaway

Investing for retirement is one of the most critical steps you can take to build a sound financial future. Even without an employer-sponsored 401(k), you should contribute as much as you personally can toward retirement and start as early as you can. There are options available for all types of financial needs, and many of the options include tax benefits. 

“Given average life expectancies, your retirement could be 25 to 30 years long, potentially even longer,” says Tierney. “Social Security can help you meet some of your retirement income needs, but it was never designed to meet all your income needs. On average, it replaces about 30% to 40% of your pre-retirement income, so it’s important to ensure you’re focusing on what you need to save and invest to provide for all your needs in retirement.”