If you're creative enough, you can cook without a stove, dance without music, and wait without impatience. But can you save without a 401(k)?

According to a study by the Aspen Institute, 55 million Americans do not have access to a workplace retirement plan such as a 401(k). That's unfortunate because 401(k)s provide big advantages to retirement savers, namely contributions that are deducted automatically from their pay, high contribution limits, and free employer-funded contributions. These features have helped Americans save almost $6 trillion cumulatively in their 401(k) plans.

Woman smiling and holding piggy bank.

Image source: Getty Images.

There is good news, however. With a little discipline, you can save effectively for retirement even without those 401(k) perks. Here's how.

1. Contribute to a Roth IRA if you're eligible

In 2020, eligible taxpayers can contribute up to $6,000 annually in a Roth IRA or traditional IRA. Those who are 50 or older also qualify for an additional $1,000 in catch-up contributions. These contribution limits apply to your total IRA deposits, whether they go to a Roth or traditional IRA.

Eligibility for Roth IRA contributions is based on your income and tax filing status, as shown in the table below.

Tax Status

Modified Adjusted Gross Income

Contribution

Single, or married filing separately

Less than $124,000

Full contribution

Single, or married filing separately

$124,000 to $139,000

Partial contribution

Single, or married filing separately

$139,000 or more

No contribution

Married, filing jointly

Less than $196,000

Full contribution

Married, filing jointly

$196,000 to $206,000

Partial contribution

Married, filing jointly

$206,000 or more

No contribution

Data source: IRS.

If you meet the income requirements, max out your Roth IRA contributions first. You do not get a tax deduction for those deposits, but your earnings in the account are tax-deferred and withdrawals after age 59 and a half are tax-free. Before you reach 59 and a half, you can pull your contributions out of the account without taxes or penalties, but you can't touch the earnings generated by these deposits.

2. Contribute to a traditional IRA

If your income is too high to contribute to a Roth IRA, then contribute to a traditional IRA instead. Those contributions are tax-deductible unless your spouse has access to a 401(k) and the two of you make more than $206,000.

As with a Roth IRA, earnings in a traditional IRA are tax-deferred. Retirement distributions from the traditional IRA are allowed after age 59 and a half, and these are taxable.

3. Contribute to a taxable brokerage account

If you max out IRA contributions for 45 years straight, that may be enough to finance a comfortable retirement. But if you've already passed your 25th birthday, you no longer have that option. In that case, supplement your IRA savings with contributions to a taxable brokerage account. Between the two accounts, target contributions equal to 15% of your income.

You will have to manage your tax burden as this account grows. Realized earnings, capital gains distributions from mutual funds, and dividends will be taxable. Look into tax-efficient mutual funds, which are managed to minimize tax events for shareholders.

Common stock shares that you buy and hold are also tax-efficient. If the shares don't pay dividends, you only incur taxes when you sell them and realize profits. You should only buy stocks if you have the time to research your stock picks and keep your portfolio diversified. Otherwise, consider buying a low-cost exchange-traded fund that mimics the growth of the broader market.

4. Launch a profitable side hustle and open a Solo 401(k) or SEP IRA

There is one more way to increase your contributions to a tax-advantaged retirement account if you don't have a 401(k). You could start a side business and open up a Solo 401(k) or a SEP IRA. The 2020 contribution limit for either account is $57,000, which is sizable. There are caveats though:

  • SEP IRA contributions can't exceed 25% of your income from the business.
  • In a Solo 401(k), you can contribute as the employee and as the employer. The distinction is important because the contribution rules for each role are different. As an employee of the business, you can contribute up to $19,500 of your compensation. As the employer, you can contribute up to 25% of your earned income. Earned income is your net earnings from self-employment less one-half of your self-employment tax and contributions to yourself. The $57,000 contribution cap applies to the total of the employee and employer contributions to a Solo 401(k).

The broader takeaway is that your business has to be profitable to make contributions to these accounts. You can't, for example, get a business license for a hobby, open a Solo 401(k), and then contribute money from your day job.

Save and invest somewhere

A 401(k) may streamline retirement savings, but you can still build wealth without one. The trick is to save and invest somewhere, even if there are tax implications. The inconvenience of a higher tax bill today is far easier to manage than the reality of facing your older years without any savings -- which, sadly, might actually involve cooking without a stove. But you can avoid that fate by tucking money away now and waiting patiently while your wealth grows.