What to do if you aren’t offered an employer-sponsored retirement plan at work

Saving for retirement is an important financial task.

But what should workers do if they don’t have access to a sponsored plan, such as a 401(k), through their employer?

In 2021, 28% of workers in private industry and state and local government didn’t have an employer-sponsored retirement plan, according to the most recent data from the U.S. Bureau of Labor Statistics.

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People employed in service industries, part-time workers, those who aren’t represented by a union and those who make the lowest wages are the least likely to have help saving for retirement from an employer. Even if they do, they are less likely than other workers to take advantage of the plan, the data shows.

Luckily, there are still ways that these workers can save for retirement.

The individual retirement account

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. That’s because young people are usually in a lower tax bracket early in their careers than they will be later, she added.

Money saved in a Roth IRA grows tax-free and you don’t have owe taxes to withdraw the money in retirement. People using a Roth IRA can also put away a nice chunk of money each year. In 2022, the total you can save in a Roth IRA is $6,000, or $7,000 if you’re age 50 or older.

Of course, there are some limits. In 2022, your modified adjusted gross income must be less than $129,000 for single filers and $204,000 for those married filing jointly in order to qualify for full use of such accounts. Single filers with modified adjusted gross income of $144,000 or more and married filing jointly making $214,000 or more can’t access the accounts at all.

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 2022, 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.

“You really have a complete open architecture in terms of what you can invest in with a Roth IRA,” said Rob Greenman, a CFP and chief growth officer and partner at Vista Capital Partners in Portland, Oregon.

Of course, this could also be an issue for investors if they try to time the market, pick risky investments or don’t have a well-balanced portfolio, he said, so caution is still warranted.

Brokerage accounts

If you don’t want to open an IRA, you could also save for retirement in a traditional brokerage account, where you’d still be able to invest in the markets to grow your money over time.

This option would give you the most freedom in terms of contributing and withdrawing, but would also mean you don’t get the tax benefits you’d see in an IRA. If you trade often in a regular brokerage account, you could be hit with a big tax bill, something that won’t happen if you use a Roth IRA.

 ”The only thing that’s better than compounding is tax-free compounding,” said Greenman.

The power of compound interest

Saving for retirement can feel like a daunting task, especially without the help of an employer-sponsored plan.

But it’s worth investing in a retirement account as soon as you can, even if it’s just small amounts of money.

That’s because compound interest over time will help that money grow by a lot more than if you saved it in a checking or savings account.

“You’re getting interest on top of interest,” Zigo said. “So not only are you getting interest on your money but you’re also getting interest on the interest your money is earning.”

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