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No 401(k) at Work? Consider These Alternatives 

Retirement Planning
Man hiking on a sunny day considering options after finding out he has no 401(k) at work

If you don't have a 401(k) at work, there are several 401(k) alternatives you can use on your own that may offer similar benefits to employer-sponsored retirement plans. Whether your job doesn't offer a 401(k), or you are self-employed and looking for ways to save for retirement, it could help to know your options.

What to Do If Your Job Doesn't Offer a 401(k)

Although many employers have adopted 401(k) plans as a benefit for their employees, not all employers offer them. Since pension plans are less common than they used to be, and Social Security benefits may not be enough to fully provide every individual the income they need in retirement, finding an alternative way to save money for retirement might be in your best interest.

401(k) Alternatives to Consider

If you have no 401(k) at work, or if you're not eligible to contribute to one, you may want to consider alternative options. It's important to note that traditional individual retirement accounts (IRAs) offer tax-deferred savings, which makes them similar to 401(k)s. However, since IRAs have certain income limitations, other options, such as variable annuities and taxable brokerage accounts, may also be worth considering.

In no particular order, here are the basics on some alternatives to consider:

Traditional IRA

 Like a traditional 401(k), contributions are made to a traditional IRA on a pretax basis. Growth is tax-deferred and distributions are taxed as ordinary income. The maximum annual contribution to a traditional IRA is $6,000 for people under 50, according to the IRS. An additional $1,000 annual catch-up contribution may be made by those age 50 and over.

Roth IRA

 Like a Roth 401(k), contributions are made to a Roth IRA on an after-tax basis. Qualified distributions in retirement are therefore tax-free provided that certain criteria are met. You must be at least age 59 1/2 and have had the account for at least five years to take qualified distributions. The maximum annual contribution to a Roth IRA is the same as a traditional IRA: $6,000 for people under 50 and $7,000 for people age 50 and over for 2020.


 A Simplified Employee Pension (SEP) IRA is available for self-employed individuals with zero to five employees. Contributions are made on a pretax basis and may not exceed the lesser of $57,000 per year for 2020 or 25% of annual income, according to the IRS.

Nonqualified Variable Annuity

Contributions to a nonqualified variable annuity are made on an after-tax basis and growth is tax-deferred. The earnings are taxed as ordinary income. There is no annual maximum contribution amount and there are no income limitations to make contributions. Although nonqualified annuities are not designed to be retirement savings vehicles, they might help you to increase your tax-deferred growth.

Taxable Brokerage Account

 Contributions are made on an after-tax basis. Account holders pay taxes annually on dividends, interest and capital gains.

By comparison, the maximum annual contribution to a 401(k) plan is $19,500, with catch up contributions of $6,500 per year for those over 50 allowed by the IRS for 2020. Employers may make matching contributions to a 401(k) plan on a pretax basis.

Distributions from a traditional 401(k) are taxed as ordinary income for the calendar year in which they are withdrawn. Qualified Roth 401(k) distributions are tax-free, as long as you are at least age 59 1/2 and have had the account for at least five years, because the account holder pays taxes on contributions. The IRS imposes a 10% early withdrawal penalty on both traditional and Roth distributions made prior to age 59 1/2. We recommend you speak to a tax advisor about your situation.

Bottom Line

If you don't have a 401(k) at work, you might want to contribute regularly to a retirement plan or to a long-term investment account that will suit your personal financial situation. Whether you do it yourself, or if you work with a financial representative, consider alternatives to a 401(k) that will work for you.

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Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.