Almost Half of Workers Lack 401(k) Access. If You're One of Them, Save Here Instead

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KEY POINTS

  • Not every company offers a sponsored retirement plan to employees.
  • If you don't have a 401(k), you can open a traditional IRA or Roth IRA and take advantage of some tax benefits.


You may not have an employer-sponsored plan -- but you still have options.

Saving for retirement is an essential thing to do, namely because once you start collecting Social Security, those benefits won't be enough to replace your former earnings in full. Right now, it's estimated that Social Security can replace around 40% of the average earner's pre-retirement income. Most seniors, however, need about twice that much income for a comfortable lifestyle. And since Social Security cuts could come down the pike, it makes the case to build savings independently.

If you have access to a 401(k) plan through your job, you have a pretty easy opportunity to save for retirement. But what if you don't?

Companies are not required to offer 401(k) plans. And for some smaller companies, the costs of administering one can be prohibitive.

A recent AARP study reveals that 48% of private sector workers in the U.S. do not have access to a 401(k) plan through their jobs. But if you're in that boat, worry not. You have another great option for socking funds away for retirement -- and reaping some tax benefits in the process.

Look to an IRA

The benefit of saving in a traditional 401(k) is getting a tax break on your contributions. Basically, any amount you put into your traditional 401(k), up to the annual maximum ($20,500 for workers under 50 and $27,000 for those 50 and over), is income the IRS won't tax you on.

If you don't have a 401(k) but want to save for the future and enjoy similar benefits, then it pays to open an IRA. The great thing about IRAs is that they're not reliant on an employer. You can open one independently -- either a traditional IRA, which will give you an upfront tax break on your contributions, or a Roth IRA, which won't offer that benefit but will give you tax-free withdrawals in retirement.

To qualify for either type of IRA, all you need is earned income. It doesn't matter if you work full-time, part-time, or for yourself. IRA limits for traditional and Roth accounts max out at $6,000 this year for workers under 50, and $7,000 for those 50 and over. So if you're 32 and earn at least $6,000 this year, you have the option to max out your IRA.

Should you save for retirement in a brokerage account?

You could. But it typically only makes sense to do so once you've maxed out your IRA. Brokerage accounts give you lots of flexibility with your money (whereas with an IRA or 401(k), you face penalties for taking withdrawals prior to age 59 ½). But brokerage accounts don't offer you any tax benefits, so a brokerage account is often a better option to explore once you've funded your IRA.

Not having a 401(k) shouldn't stop you from saving for retirement and enjoying tax benefits along the way. If you work for a company that doesn't offer a 401(k), or if you work for yourself, go out and open an IRA and use it to make your retirement goals a reality.

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