4-minute article

Three retirement savings options if you don't have a 401(k)

Plan for retirement Annuity basics

Creating a more secure retirement can start with understanding the savings options available to you. A 401(k) can be a valuable foundation for your retirement, but there are a variety of reasons someone may not have access to this type of plan. Without a workplace savings plan, you may need to use other tools that can help support your goals and future income needs. Traditional IRAs, Roth IRAs and annuities can help diversify your retirement plan by offering additional ways to build retirement savings and, in the case of annuities, create reliable income for the years ahead.

401(k)

A 401(k) is an effective and convenient way to save for retirement. Money is automatically withheld from your paycheck using pre-tax dollars, and you can contribute up to a set limit each year — plus an additional “catch-up” amount if you’re age 50 or older. You may also receive employer matching contributions to help build those savings for the future.

You’ll generally pay income taxes on your contributions and earnings when you withdraw funds in retirement. If you take money out before age 59½, you may also pay a 10 percent penalty tax, unless an exception applies. Many 401(k) plans are invested in the market, so the value of your account can fluctuate over time.

Other retirement savings options

If you do not have access to a 401(k) or are self-employed, there are three other retirement savings options to consider: a traditional IRA, a Roth IRA and an annuity. Traditional and Roth IRAs are tax-advantaged accounts that can hold a range of investments, such as mutual funds, stocks or certificates of deposit (CDs), while an annuity can help create guaranteed income for the future — including when held within a traditional or Roth IRA.

Traditional IRA

People can contribute up to $7,500 each year to an Individual Retirement Account — $8,600 if you’re age 50 or older. If you don’t have a 401(k) or similar retirement account at work, you may be able to deduct your full IRA contribution from your taxes. Married couples can each have their own IRA and can take advantage of the full combined contribution on a tax-deferred basis.

As with a 401(k), you’ll pay taxes on contributions and earnings when you withdraw funds. If you withdraw funds before age 59½, you may also pay an additional 10 percent penalty unless an exception applies. Changes made by the SECURE Act 2.0 allow anyone who turned age 70 on July 1, 2019, to delay taking required minimum distributions (RMDs) until age 73.

Roth IRA

Roth IRAs have the same contribution limits as traditional IRAs. You can’t deduct Roth IRA contributions from your current taxes, but you can withdraw both contributions and earnings tax-free after age 59½ if the account is at least five years old. Unlike a traditional IRA or 401(k), there’s no penalty for withdrawing contributions before age 59½, although there may be a 10 percent penalty on early withdrawals of account earnings that do not meet certain qualified exceptions.

With a Roth IRA, you’re not required to take RMDs and you can continue making contributions as long as you have eligible earned income and your income doesn’t exceed the IRS Modified Adjusted Gross Income (MAGI) limits. If your MAGI is too high, your ability to contribute directly to a Roth IRA may be affected.

Keep in mind: You can save in both a traditional IRA and a Roth IRA as long as the total amount you contribute doesn’t exceed the annual limits set by the IRS.

Annuity

Annuities provide insurance against the risk of outliving your money after you retire and may also provide protection from loss due to market downturns. You may also have the option to place a traditional or Roth IRA in an annuity. Doing so gives you the opportunity to convert those retirement savings into a stream of guaranteed income.

With life expectancy increasing, retirement can now span 20 to 30 years or more, making it more important than ever to plan for reliable retirement income. Adding an annuity to a retirement strategy can help fill income gaps and may provide a source of steady payments throughout retirement. Some annuities can even provide income for life, regardless of how long you live.

Comparing retirement savings options

Here is a breakdown of retirement savings options that can provide the financial resources necessary to help make your retirement remarkable.

Comparison of traditional IRAs, Roth IRAs and annuities, including contribution limits, tax benefits, withdrawal rules, required minimum distributions and unique advantages.
Option	Contribution limits	Tax benefits	Withdrawals	RMDs	Unique advantage
Traditional IRA	$7,500 annually ($8,600 if age 50 or older)	Contributions may be tax-deductible	Taxed at withdrawal; a 10% penalty may apply if taken before age 59½¹	Yes	Tax-deferred growth and flexibility
Roth IRA	$7,500 annually ($8,600 if age 50 or older), subject to income limits	No upfront deduction; qualified withdrawals are generally tax-free	Contributions can generally be withdrawn at any time; earnings may be tax-free after age 59½ and five years¹	None during the owner’s lifetime	Potential tax-free income in retirement
Annuity	Varies by contract	May grow tax-deferred	Depends on the contract	Required for qualified money, such as pre-tax IRA funds; not required for non-qualified, after-tax money	Guaranteed lifetime income options

FAQs about retirement saving options

1. Beyond a 401(k), how else can I save for retirement?

Besides a 401(k), there are several options that can help you save for retirement. If you qualify, you can open a traditional IRA, which can offer tax-deductible contributions, or a Roth IRA, where qualified withdrawals in retirement are generally tax-free. An annuity may also be an option by helping money grow tax-deferred and helping protect you from outliving your savings through guaranteed income later in life.

2. What is the difference between a traditional IRA and a Roth IRA?

The main difference between a traditional IRA and a Roth IRA is when you pay taxes. With a traditional IRA, contributions may be made with pre-tax dollars, so withdrawals in retirement can be taxed as income in your future applicable tax bracket. Roth IRA contributions are made with after-tax dollars, so qualified withdrawals are generally tax-free. Another key difference is that traditional IRAs require RMDs to begin at age 73 or later, while Roth IRAs have no RMDs during the owner’s lifetime.

3. Can I contribute to multiple retirement savings accounts?

Yes. Contributing to multiple retirement savings accounts can help diversify your savings and tax strategies and help ensure you have the income required to cover your retirement needs. While you can have several accounts, the IRS limits the total amount that can be contributed annually across all IRAs and separately limits contributions to your 401(k).

4. Are annuities a safe retirement option?

Annuities might appear similar to investments; however, they’re insurance contracts designed to help address the risk of outliving your money. They can help your money grow tax-deferred and provide a steady income stream for retirement. With a fixed indexed annuity, your money is not invested directly in the market, so you can pursue growth potential while also receiving protection from market downturns. If you choose to spread funds across multiple index options, a fixed indexed annuity may also help smooth out returns during volatile periods.

Find a retirement strategy that fits your goals

Not sure which retirement planning options are right for you? Make an appointment with your financial professional to discuss your options for a retirement income strategy that fits your needs and goals.

Want the most from your retirement? Get smarter with Smart Strategies from Athene. Your source for tips, tools and financial solutions that can help you live your best life.

¹ May be subject to certain exceptions.

Although fixed indexed annuities offer principal protection from market downturns, the deduction of applicable charges could exceed any interest credited, resulting in the loss of principal.

Withdrawals and surrender of taxable amounts are subject to ordinary income tax, and except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59½.

Under current tax law, the Internal Revenue Code already provides tax deferral to qualified money, so there is no additional tax benefit obtained by funding a qualified contract, such as an IRA, with an annuity; consider the other benefits provided by an annuity, such as lifetime income and a Death Benefit.

Any information regarding taxation contained herein is based on our understanding of current tax law, which is subject to change and differing interpretations. This information should not be relied on as tax, legal or financial advice and cannot be used by any taxpayer for the purposes of avoiding penalties under the Internal Revenue Code. We recommend that taxpayers consult with their professional tax and legal advisors for applicability to their personal circumstances.

Guarantees provided by annuities are subject to the financial strength and claims-paying ability of the issuing insurance company.

Indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market indices may not include dividends paid on the underlying stocks and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.