No 401(k)? Here's How Dave Ramsey Recommends Saving for Retirement

Is Ramsey's advice about retirement savings right for you?

If you don't have a workplace 401(k), saving for retirement can be harder. You'll have to do it without an employer match that provides extra funds. And you won't just be able to rely on your company to open an account for you after you fill out some simple paperwork. You're going to have to set up a system to save -- and take advantage of tax breaks for doing so -- all on your own.

The good news is, personal finance expert Dave Ramsey has some advice that can help you do just that. Here's how Ramsey recommends saving for retirement if you do not have a 401(k) to rely on. 

This is where Dave Ramsey says you should put your retirement money

On the Ramsey Solutions blog, there are a number of potential retirement accounts listed that you could potentially use to save for your later years and receive tax breaks. They include a Roth IRA, a Solo 401(k), and a SEP IRA. However, the Roth IRA is the one that Ramsey describes as "our favorite."

As Ramsey explains, a Roth IRA "isn’t just an alternative retirement plan. It’s one of the best retirement plans available!"  

This type of plan does not accept contributions with pre-tax dollars like a traditional 401(k). Instead, you invest with after-tax money so there's no upfront savings in the year you make a contribution to your account. However, when you withdraw money from your Roth IRA as a senior, there's no taxes charged on that cash at all -- unlike with a 401(k), which requires you to pay taxes on distributions. 

This special tax rule is the key reason why Ramsey is such a fan of Roth IRAs. "In a Roth IRA, you pay taxes upfront when you contribute, which means your money grows tax-free (music to our ears) and you can withdraw it tax-free in retirement (even more beautiful music!)."

This isn't the only benefit Ramsey highlights. He also indicates he likes the accounts because "you can invest in all kinds of things through your Roth IRA," and because "the plan is available to pretty much everyone (depending on your income)."

Together, the tax benefits coupled with these features make it the "rock star of retirement accounts!" in Ramsey's mind. 

Is Ramsey right?

When it comes to his preference for the Roth IRA, Ramsey has the right idea. For many people, a Roth IRA is the best option for retirement savings because of the tax benefits the Ramsey Solutions blog highlights.

However, a lot depends on whether you expect to be in a higher or lower tax bracket as a retiree. If you expect your taxes to be higher in the future, choosing a Roth IRA makes sense. 

But if you think you are paying a much higher rate now than you will later, it would be smarter to use a traditional IRA as a 401(k) alternative if you don't have a workplace account. A traditional IRA can offer a tax break in the year you make the contributions, and you want to claim your savings at the time when you would otherwise pay the most in taxes.

Whether you opt for a traditional IRA or a Roth IRA as Ramsey suggested, you should carefully research brokerage firms to find the best no-fee options with plenty of great investments. You owe it to yourself to make sure you're using the best account possible if your employer isn't helping set you up for a secure future.