If your employer does not offer a retirement plan, what steps can you take?

Saving for retirement is an important financial task.

If workers do not have access to a sponsored plan, such as a 401(k), through their employer, what should they do?

According to the U.S. Bureau of Labor Statistics' most recent data from 2021, 28% of workers in private industry and state and local government did not have an employer-sponsored retirement plan.

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Those who work in service industries, part-time, not unionized, and earn the lowest wages are the least likely to have employer-sponsored retirement plans and, even if they do, are less likely to utilize them compared to other workers, according to data.

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

The individual retirement account

If you don't have an employer-sponsored 401(k), opening a Roth individual retirement account is often recommended, as you'll make your own contributions with after-tax dollars.

Tess Zigo, a certified financial planner at Emerge Wealth Strategies in Lisle, Illinois, stated that she loves the Roth IRA for young investors because they are typically in a lower tax bracket early in their careers than they will be later.

Roth IRA savings grow tax-free and you don't owe taxes on withdrawals in retirement. Additionally, individuals using a Roth IRA can save a significant amount each year. In 2022, the maximum contribution to a Roth IRA is $6,000 or $7,000 if you are age 50 or older.

In 2022, to qualify for full use of certain accounts, single filers must have a modified adjusted gross income of less than $129,000, while married filing jointly filers must have a modified adjusted gross income of less than $204,000. Single filers with a modified adjusted gross income of $144,000 or more and married filing jointly making $214,000 or more are not eligible to use these accounts.

You could save for retirement in a traditional IRA, which defers taxes, if you have taxable compensation. This is beneficial if you are currently in a higher tax bracket than you will be in the future. In 2022, the contribution limit for a traditional IRA is $6,000 or $7,000 if you are 50 or older.

If you or your spouse do not have a 401(k) through work, some contributions you make to a traditional IRA are tax-deductible, based on other financial factors.

An IRA provides investors with more flexibility in choosing their investments compared to a traditional 401(k) sponsored by an employer.

Rob Greenman, a CFP and chief growth officer and partner at Vista Capital Partners in Portland, Oregon, stated that a Roth IRA allows for a completely open architecture for investments.

Caution is still necessary for investors, as trying to time the market, picking risky investments, or not having a well-balanced portfolio could lead to issues.

Brokerage accounts

You could also save for retirement in a traditional brokerage account, allowing you to invest in the markets and grow your money over time.

Using a Roth IRA instead of a regular brokerage account can help you avoid paying taxes on your trades.

Greenman stated that tax-free compounding is superior to compounding.

The power of compound interest

Retirement planning can be overwhelming without an employer-sponsored plan to assist.

It's wise to invest in a retirement account, even if it's only small amounts of money, as soon as possible.

Saving money in a checking or savings account will not yield as much growth as compound interest over time.

Zigo stated, "You're earning interest on top of interest, meaning you're not only gaining interest on your initial investment but also on the interest your investment is generating."

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