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How to Save for Retirement Without a 401(k)

The 401(k) plan has been the de facto retirement plan for most Americans with full time employment for more than 50 years. However, many Americans are now considering new, alternative ways to save for retirement. This shift is happening in large part due to a changing workforce.

One in three Americans works on a freelance basis, according to data released by Freelancers Union and Elance-oDesk in September 2014. One-third of all workers, according to data pulled from Pew Trusts, also do not have access to a retirement plan sponsored by their employers. In addition to offering employer-sponsored 401(k) plans, in prior years many employers also offered matching 401(k) contributions as a part of their compensation plan.

While this practice is still offered by some companies, it is less common. Whether you are self-employed, working part-time or do not have a 401(k) plan at your place of employment, you can still save money for your retirement in other ways. No matter what options are available to you, it's important to begin now and save regularly so that you can build a nest egg that will support your lifestyle in future years. Here are some tools for saving for retirement if you don't have the option of contributing to a 401(k). (For more, see: Retirement Plans for the Self-Employed.)

Roth IRAs

With a Roth IRA, you have the opportunity to put away tax-free dollars up to $5,500 per year and up to $6,500 per year if you are 50 years or older. To be eligible for a Roth IRA, you need to have an earned income and a modified adjusted gross income (MAGI) of up to $120,000 for single people or $189,000 for married couples, filing jointly. There are limits on contributions for those with a MAGI above these figures.

When you open a Roth IRA account, you can choose from a variety of mutual funds. You will pay taxes on your contributions up front, but your money grows tax free. As long as you do not pull out the funds early, you can grow your nest egg substantially over time. Married couples can also contribute to two accounts, bringing their annual retirement contribution to $11,000 per year for their Roth IRAs.

Traditional IRAs

If your income is higher than the limits for Roth IRA eligibility requirements, you can contribute to a traditional IRA. Contribution limits are the same, with $5,500 per year allowed for individuals up to the age of 50, and $6,500 per year for individuals aged 50 and over. Traditional IRAs are not taxed at the onset but only at withdrawal and there is a penalty for early withdrawal.

Traditional IRAs work best for individuals who are not subject to annual income limits, which phase out how much you can contribute for higher earners. The IRS  imposes some other restrictions on traditional IRAs, like necessary withdrawals from the age of 70.5 years old. You also cannot contribute anymore to this account once you reach the age of 70.5. When you withdraw your funds, you will pay taxes on your money.

Self-Employed 401(k) Plan

When you are self employed and do not have any employees, you are eligible to have an individual 401(k) plan, where you are allowed to contribute a maximum of $18,500 per year. Your contribution is tax deductible. If you are an employer, in addition you can also contribute as much as 25% of your total income up to a maximum of $55,000 per year.

SEP IRAs

Small business owners often use this retirement account to help their employees grow their retirement savings. As a small business owner, you can also open a SEP IRA for yourself. Your maximum contribution allowed is 25% of your total income, up to a maximum of $55,000 per year. (For more, see: 401(k) Plans for the Small Business Owner.)

Simple IRAs

As a small business owner with several employees, you can offer a simple IRA that allows you to match your employees' contributions up to 3%. Contributions for this account are tax deductible and the annual contribution limit is $12,500.

403(b) Plan

A 403(b) is a pre-tax investment plan that allows you to invest in mutual funds and annuities if you work at a non-profit or a tax-exempt organization.

Thrift Savings Plan

A thrift savings plan (TSP) is a retirement plan for federal employees that offers matching contributions. A TSP allows you to grow your money tax free and to make after-tax contributions like a Roth IRA.

Taxable Investment Account

Another great way to save for your retirement is to invest in a taxable investment account. You can get the assistance of a financial advisor and accountant to help you maximize your tax deferments and lower your overall tax payments.

Set Up Direct Deposit and Budget

Many employees and self-employed individuals will benefit from using direct deposit to invest. There are many options available online for investing so that you can guarantee that a portion of your earnings are directly deposited into your retirement accounts at regular intervals.

Finally, having an adaptable, constantly updated monthly budget is important. Your expenses, earnings and priorities shift over time. Your budget needs to reflect this.

Many high income earning individuals (defined as earning over $100,000 annually) do not spend the time necessary to budget, and they react to situations instead of planning ahead. Budgeting does not need to be an unpleasant process. Think of it as a way for you to gain control of your life and to put aside money for your priorities and to achieve your life goals, whatever they may be.

Financial planning at times can seem cumbersome, but avoiding it can make things much harder for you in the future. Start saving and investing in your future as soon as you can. By the time retirement rolls around, you will be able to do all the things you hoped for, and much more. (For more from this author, see: Benefits of an Individual 401(k) for Self Employed.)