How to Open a 401k … Without an Employer

Apr 29, 2018 2 min read

About 80 percent of full-time workers have access to employer-sponsored retirement plans — the majority of which are 401(k)s — according to the American Benefits Council. But what if your employer doesn’t offer a 401k plan? Or if you work for yourself?  If you’re one of the 20 percent who do not have access to employer-sponsored 401(k)s, don’t worry! There are other options when planning for retirement, and they can be just as helpful and convenient.

1. Set up a Solo 401(k)

If you are self-employed you can actually start a 401(k) plan for yourself as a solo participant. In this situation, you would be both the employee and the employer, meaning you can actually put more into the 401(k) yourself because you are the employer match! Therefore, you can actually set aside more in this case than you would be able to with a workplace 401(k). 

For example, as an employee, you can contribute up to a maximum of $18,000 per year ($24,000 if you're 50 or older). On top of that, you can contribute up to 20 percent of net earnings from self-employment, or 25 percent of compensation as a business owner. In total, your combined annual contributions could be up to $53,000.

The good news is, now more than ever, financial professionals can help you set up a solo 401(k). Make sure to plan to have an account open with some contributions by Dec. 31 of the year you intend to begin.

2. Fund a Traditional IRA

If you’re not a small business owner, that’s OK. There are other ways to save for retirement without a 401(k). To start, an investment retirement account (IRA) could be a great option for you.  A traditional IRA is an account set up through a financial institution that allows an individual to save for retirement with tax-free growth. IRAs provide more investment options as compared to 401(k) plans. With an IRA you can do the following:

• Contribute up to $5,500 annually ($6,500 if you’re age 50-plus).

• Have an IRA for both you and your spouse offering the opportunity to set aside as much as $11,000 in tax-deferred savings each year.

• Not pay any tax on dollars you invest or interest you earn until you withdraw money from the account.

One of the major perks of 401(k) plans is that the deposits are immediately taken out of your paycheck and set into the account, which prevents you from spending the money or having to take action to save. However, you can do this with an IRA too. You can set up a direct deposit from your paycheck to an IRA or other type of investment account.

Another smart option for funding your IRA is to use your tax refund and invest it in your account. The IRS Form 8888 allows you to directly deposit your tax refund into your IRA.

3. Open a Roth IRA

Roth IRAs are a great option for younger adults to save because they have the benefit of time. When comparing a traditional IRA and a Roth IRA, the contribution limits are the same but they are taxed differently. Your contribution to a Roth IRA is with after-tax dollars. When you decide to withdraw the money after age 59.5, you can do so tax free in retirement.

What’s even better? You could very well be in a higher tax bracket by the time you reach retirement than when you start at a young age. So when you take your tax-free withdrawals from your Roth IRA you’ll have saved money on taxes.

4. Talk to a Financial Professional

When in doubt, ask a professional. Contact your agent to start preparing for your retirement today. With so many acronyms like IRA and 401(k), your local Farm Bureau agent can help you understand what’s best for you. You don’t need to have a lot of money to get started — what’s more important is that you start now — and use a financial professional to help you along the way.


Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.