How to open a 401(k) without an employer

Young professionals hear all the time that they need to start investing in their retirement plan now, so they can have a comfortable nest egg by the time they are ready to retire. One of the most popular retirement plans that many professionals invest in is a 401(k). However, this option is only available through an employer, so you might be wondering how you can open one if you are self-employed or if your current employer does not offer a 401(k) plan. 

Don’t worry. You have options.

Self employed business owner? Start a solo 401(k)

Do you own a business and not have any employees who work for you? You are probably eligible for a solo 401(k). Setting up a solo 401(k) is advantageous for people who are self-employed business owners because you can contribute up to the annual maximum as well as up to 20% of your net earnings or 25% of compensation as a business owner. 

As of 2020, solo 401(k) account holders can contribute up to $19,500 (account holders who are 50 or older can contribute an additional $6,500). This means you have an opportunity to contribute a lot into your retirement funds if you have enough financial security to make the maximum contributions for yourself as the account beneficiary and the matching contributions as your own employer.

Remember, a solo 401(k) is only applicable if you have no employees in your small business other than yourself. If you have employees, you can explore other 401(k) options that can benefit you and your employees.

Can’t start a solo 401(k)? Invest in alternative retirement options

Not a business owner but work for someone who does not offer a 401(k) plan? Not to worry. There are alternative options that can help you build up your retirement nest egg.

A popular alternative to a 401(k) is an IRA account. There are different types of IRA accounts but they all have some essentials in common:

• As of 2020, IRA contributions are limited to $6,000 per year, or $7,000 if you are 50 or older.
  
• IRAs allow you to have more freedom with your investment decisions than an employer-sponsored 401(k) plan.
  
• You can set up a direct deposit into your IRA from your paycheck.

The two major types of IRA accounts are the traditional IRA and the Roth IRA. With the traditional IRA, you make pre-tax contributions that you pay taxes on when withdrawing in your retirement. With a Roth IRA, you make after-tax contributions that you can withdraw tax-free in your retirement. The latter could be beneficial for you if you anticipate being in a higher tax bracket when you retire, but if you would rather take advantage of reducing taxes now, a traditional IRA might be better for you.

Talk to a ProVise CFP® professional about investing in your retirement without an employer

There are many different avenues for investing in your retirement plan. Choosing the right one (or ones) for you without any guidance is like standing at an intersection with no idea which way you need to go but walking down a street at random in hopes it will lead you to your destination. Instead, you should turn to the guidance of a navigator who knows how to get you where you are going. This is what we do at ProVise Management Group.

Our CERTIFIED FINANCIAL PLANNER™ professionals take the time to get to know you, your goals, and the beliefs that drive you. We use what we learn to develop a financial plan with your retirement goals in mind at a risk tolerance level that is comfortable for you. 

We can analyze your current circumstances and goals to draft a plan at a fiduciary standard of care. All of our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about setting up a retirement plan for you that does not rely on an employer? Contact ProVise today to schedule a complimentary consultation.