How to Save for Retirement Without an Employer Plan

May 2023

It is difficult to imagine that in a country where small businesses employ the vast majority of workers, nearly two-thirds of those businesses do not offer employee retirement plans, like 401(k) accounts.  It is a frustrating fact that discourages workers from saving for retirement, assuming employee retirement plans are their only avenue to get started.

A recent survey by Fidelity Investments cited that almost 50% of businesses that do not offer a plan say they can’t afford to and are too busy running their business to focus on employee retirement.  Whatever the reasons, it should not discourage workers from taking it upon themselves to save for retirement.  Fortunately, employees have more options than they think.

Individual Retirement Accounts (IRAs)

IRAs are one of the oldest retirement accounts available to workers with earned income, whether covered by an employer retirement plan or not.  If not covered by an employer plan, then as of 2023, individuals can contribute up to $6,500 ($7,500 if they are age 50 or older) annually, which is fully tax deductible.  In addition, those who are married and not covered under an employer plan can contribute $13,000 ($6,500 each), which is fully deductible, or $15,000 if over age 50.

If an employer plan covers a spouse, the non-covered spouse can deduct the entire contribution if their modified adjusted income is $116,000 or less (2023).  For a single taxpayer, the modified adjusted income is $73,000 or less for a full deduction.

Roth IRAs

Roth IRAs are never tax-deductible in the year contributions are made.  However, “qualified distributions” from a Roth are tax-free.  The qualifications for tax-free withdrawals include having the Roth in place for at least five years, and turning  59 ½.  Please note that contributions can always be withdrawn at any time tax and penalty free  because you’ve already paid income tax on those monies.

However, the same isn’t always true for investment earnings on those contributions.  If you withdraw the earnings from your Roth before age 59 ½ you would be subject to a 10% tax penalty and income taxes.

Roth IRAs are subject to the same contribution limits as the regular IRA above.

You can contribute to both a  deductible IRA and Roth IRA  but the limits are annual totals, not per-account totals.  For example, it is possible to contribute $3,500 to a deductible IRA, and $3,000 to a Roth IRA, but you cannot contribute $6,500 to each account.


Annuities come in various types, including fixed, variable, immediate, and equity-indexed.  For the sake of this article, I’ll focus on variable annuities that include mutual fund investments, which are the most popular.  Variable annuities can be opened with after-tax money, without annual minimums, and the money grows on a tax-deferred basis.  Contributions are not tax deductible unless it is an IRA variable annuity.

Given their high annual costs and how they are sold (some with commissions), I’m not a fan of variable annuities.  It also doesn’t make sense to own an annuity within an IRA since both are tax-deferred.  I equate this to wearing two raincoats in lousy weather.  It is unnecessary.  Furthermore, additional fees may be associated for other options like guaranteed income benefits, survivor benefits, and other riders related to the product.  Given the limitations, this is my least desirable retirement account option.

Taxable accounts

Brokerage accounts are excellent options and can be opened with a reputable custodian such as Charles Schwab or Fidelity Investments.  Contributions with after-tax money are unlimited.  Unlike an IRA, Roth, or annuity, the money grows at regular capital gain, dividend, and interest income tax rates.  In addition, there are no age limitations on when funds can be accessed, unlike an IRA, which cannot be touched without penalties before age 59½ (with some exceptions).

Remember, your money is always accessible.  However, if using a taxable account as part of your retirement savings portfolio, I recommend it be considered another retirement account that shouldn’t be touched until 59 ½.

Other Thoughts

Planning how much is necessary to save toward retirement and get started as soon as possible is essential.  Postponing saving today means increasing your saving rate down the road to achieving a comfortable retirement.

Suppose you discover that you’ve contributed the maximum to your deductible IRA and/or Roth IRA and have additional monies to invest. In that case, you should open a taxable brokerage account and continue investing there.


It is easy to become discouraged as an employee when your employer doesn’t offer a formal retirement plan.  I’ve spoken to many people over the years in this situation and recommended the above options to them.  It takes a little more effort to establish them at the necessary financial institution, but once you do, you’ll be happy you did.

And once you do, you’ll have to assess your risk profile and determine an appropriate investment allocation (the mix between stocks, bonds, and cash).  Once you select your investments, you can automate the process by having your money transferred to your accounts every two weeks and then direct the custodian to invest the money automatically without having to do so yourself.  The more you can automate the deposit and ongoing investments, the easier it is to save for retirement and build your retirement legacy.

If you get stuck in the process, you might want to consider working with a financial advisor.  An advisor can also help you devise an appropriate investment allocation, including selecting suitable investments for your goals.  Because your retirement is a serious matter, never hesitate to use a professional if you feel it will move you along.  The team at Bloom Advisors has expertise in this space; we’d love the chance to help you build your financial future.

Good luck!

More News