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How to save for retirement if you don’t have a 401(k) at work

Saving for retirement is an important part of a long-term financial plan, even if you don't get help with a 401(k) through work.

In 2020, some 33% of private industry workers didn't have access to an employer-sponsored retirement plan, according to data from the Bureau of Labor Statistics. Part-time workers, those in service industries and those who made the lowest wages were the least likely to have any kind of help saving for retirement from their employer.

Fortunately, there are ways to save for retirement outside of a traditional employer-sponsored 401(k) plan.

Roth and traditional IRAs

Often the first thing advisors recommend to those who don't have an employer-sponsored 401(k) is opening a Roth individual retirement account, where you'd set up your own contributions with after-tax dollars.

"I love the Roth IRA for young investors," said Tess Zigo, a certified financial planner at Emerge Wealth Strategies in Lisle, Illinois, adding that this is because young people are usually in a lower tax bracket early in their careers than they will be later.

Saving money in a Roth IRA means the funds will grow tax-free, meaning you don't have to pay anything to withdraw the money in retirement. People using a Roth IRA can also put away a nice chunk of money each year. In 2021, the total you can save in a Roth IRA is $6,000, or $7,000 if you're 50 or older.

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Of course, there are some limits. In 2021, your modified adjusted gross income must be less than $140,000 for single filers and $208,000 for those married filing jointly in order to qualify.

If you have taxable compensation, you could also save for retirement in a traditional IRA, which allows you to defer taxes, similar to a 401(k). This makes sense if you are in a higher tax bracket now than you will be later. In 2021, the contribution limit for a traditional IRA is $6,000 or $7,000 if you're 50 or older.

And, if you or a spouse don't have a 401(k) through work, some contributions you make to a traditional IRA are deductible, depending on other aspects of your finances.

One benefit to these accounts is that they may offer investors more freedom to decide how they're investing their money than a traditional 401(k) sponsored by an employer. In an IRA, investors generally can select their own stocks, bonds, mutual funds, exchange-traded funds and more, instead of picking from a limited number of options through their plan.


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