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No 401(k) Match? 5 Alternate Ways to Save for Retirement

By Adam Levy - Feb 2, 2021 at 7:47AM

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Don't let a lack of employer matching discourage you from saving for retirement.

One of the biggest perks of saving for retirement in a 401(k) account is the employer match. But not every employer plan offers a match, and some companies have temporarily suspended their matching contributions amid the coronavirus pandemic.

A lack of a company match makes the 401(k) a much less attractive savings account, especially considering the high fees typically associated with 401(k) plans and investment options. Here are five choices to consider if your employer doesn't offer a matching contribution.

A piggy bank on a pile of cash.

Image source: Getty Images.

1. A health savings account

If you have a qualifying high-deductible health insurance plan, you're eligible to contribute to an HSA, or health savings account. While the HSA is designed to help offset the out-of-pocket costs associated with high-deductible insurance plans, it can be an excellent retirement savings tool.

Contributions to an HSA are tax-deductible. Additionally, the interest and capital gains in the account accumulate tax-free. On top of that, you can withdraw funds tax-free to pay for qualified medical expenses. And if your employer offers an HSA, you can have contributions deducted from your paycheck, and those funds are exempt from Social Security and Medicare tax as well.

Importantly, you don't have to use the funds to pay for medical expenses as they occur. If you save your receipts, you can let your funds grow and reimburse yourself years (or decades) later. And if you somehow make it well into retirement without incurring significant medical expenses, you can withdraw funds and pay regular income taxes on your withdrawal. It has the same tax treatment as a traditional IRA for non-medical expenses once you reach age 65.

The only downside to an HSA is the low contribution limit. Individuals are limited to $3,600 in contributions for 2021, and families can contribute a total of $7,200.

2. An individual retirement account

An individual retirement account, or IRA, is a retirement account available to anyone with earned income. It provides tax advantages similar to a 401(k), but it usually has much lower fees and more investment choices.

Investors can choose between a traditional IRA and a Roth IRA. With a traditional IRA, you contribute funds and deduct the amount on your tax return. When you go to withdraw funds, you'll pay regular income tax. With a Roth account, you pay taxes on your contributions the year they're made, but you won't owe any tax on withdrawals. Both accounts allow your investments to grow tax-free.

The contribution limit for an IRA in 2021 is $6,000 per individual. Those 50 or older can put in an extra $1,000. There are also income limits to be aware of that may limit your ability to contribute to a Roth IRA or deduct your contribution to a traditional IRA.

3. Contribute to your 401(k) without a match

Even if your employer doesn't offer a match, a 401(k) could still be a good way to save for retirement. Savings in a 401(k) have similar tax advantages as an individual retirement account, but the contribution limit is much higher. For 2021, savers can contribute up to $19,500 in their 401(k). Those 50 and older can make catch-up contributions of $6,500, bringing the total limit for the year to $26,000.

If you plan your taxes properly, you should be able to save on your tax bill by investing through a 401(k). That said, you'll need to be cognizant of the fees associated with your account and investments. If the fees eat into your investment gains, it could end up costing you more in foregone investment returns than you'll save on taxes. 

4. A taxable brokerage account

There's nothing stopping you from saving for retirement in a taxable brokerage account. In fact, savvy investors will often do well to have some money outside of tax-advantaged retirement accounts, like a 401(k) and an IRA. That's because the federal government provides preferential tax treatment to capital gains. Additionally, investing in a taxable brokerage provides the ability to harvest capital losses to offset your taxable income.

If you wait until retirement, when your normal income is either zero or very low, you can take the most advantage of the federal government's long-term capital gains tax rates. And if you end up retiring to a state with no or low income tax rates, you could end up doing better than saving in a Roth retirement account thanks to the 0% federal tax bracket on long-term gains.

5. Roll your own self-employed retirement account

If you have a side hustle and generate self-employment income, you're eligible to open a retirement plan for yourself. If you have no other full-time employees besides yourself and your spouse, you can open a solo 401(k). Alternatively, you could open a SEP IRA.

These retirement accounts for the self-employed come with the advantage of lower fees than corporate 401(k) plans and more investment choices. Typically, you can open a solo 401(k) or a SEP IRA for free with most discount brokerages, and you'll be able to invest in any funds and securities they offer in any other brokerage account.

If you only make a few thousand dollars in your side hustle, your contributions will be limited. With a SEP IRA, you can contribute up to 25% of your business net income. You can also contribute that amount to a solo 401(k) in addition to the standard employee contribution limit -- $19,500 in 2021, or $26,000 for those 50 or older. Solo 401(k) contributions are still limited to your total business net income, and you cannot contribute more than the limit combined to your solo 401(k) and your employer's 401(k) at your nine-to-five.

Don't let a lack of employer match on your 401(k) discourage you from saving for retirement. There are still plenty of advantageous options.

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