How to Save for Retirement When Your Startup Has No 401(k)

Business woman working in a start-up

You’re working for a startup. It’s in its first years of operation. Chances are you don’t have an opportunity to save for retirement via an employer-sponsored retirement plan like a 401(k)

During the early stages of a startup, businesses are focused on conserving cash to grow and scale. It can often take several rounds of funding before a startup has the resources to actually offer employees a company-sponsored retirement plan.


For more tips about navigating the startup world, check out

5 Financial Moves to Make While Working for a Startup 


To help potentially offset this dilemma, many companies offer early employees equity as an incentive to join and grow the business. In theory, as the business grows and scales, so does the value of your equity in the company. This equity might end up being a lucrative retirement tradeoff should your startup experience a future liquidity event, such as an IPO or acquisition. 

Unfortunately, most startups never experience this level of financial success. A 2021 Failory study found only 10% of startups are successful each year. Given the volatility of working for a startup, where do you turn to kickstart your retirement investing so as to not lose ground on a secure financial future? 

Here are a few options to help you take steps towards retirement, regardless of a startup’s boom or bust.

Looking for a better investing experience?

10 key investment principles to live by.

1. Start with the Individual Retirement Account (IRA)

You’ve probably heard of IRAs, short for Individual Retirement Accounts. Anyone with earned income (including those who don’t work themselves but have a working spouse) can open an IRA. There are two different types of IRAs – the Traditional IRA and Roth IRA, each offering different advantages. 

Traditional IRA

With Traditional IRAs, you receive a tax break upfront and deduct your contributions when you file your annual tax return. The money contributed grows in the account tax-free. Once you enter retirement and begin using the funds, the distributions are taxed as ordinary income. It’s important to note: even if you don’t need the funds in your Traditional IRA during retirement, you will be forced to take Required Minimum Distributions (RMDs) starting at age 72. 

Roth IRA

A Roth IRA doesn’t provide the same initial tax break that a Traditional IRA affords you. These contributions are made with after-tax dollars. That said, qualified distributions (those made after age 59½ from accounts that have been established for at least five years) are tax-free. This can potentially be a huge financial advantage, especially for those expecting to be in a higher tax bracket during retirement. The Roth IRA has an additional advantage: there are no RMDs for funds in this account. 

IRA Contribution Limits

Whether you find yourself contributing to a Traditional or Roth IRA, the contribution limits are the same. For the 2022 tax year, you can contribute up to $6,000 to this account. If you find yourself 50 or older, you can make an additional catch-up contribution of $1,000. 

To make the most of either IRA while working at a startup, it’s best to start early and save consistently. 

2. Think Long Term with the Health Savings Account (HSA)

An undercover method to boost your retirement savings while working at a startup is to contribute to a Health Savings Account (HSA). While HSAs are largely intended to cover healthcare related expenses, they can be a valuable source of income for when you retire. To qualify for an HSA in 2022, individuals need a health insurance plan with a deductible of at least $1,400. This number doubles to $2,800 for families. 

Your HSA contributions are tax deductible, so they will lower your tax bill in the year those contributions are made. Withdrawals for qualifying healthcare expenses, including dental and vision care, can be made tax free. 

For 2022, the maximum HSA contribution is $3,650 for individuals and $7,300 for families. Those 55 and older can make an additional catch-up contribution of $1,000. 

Unlike the Flexible Savings Account (FSA), HSAs don’t have the use-it-or-lose it provision. This means if you make the maximum contribution annually, you could potentially have a large sum of money to tap into once you enter retirement, assuming that you remain healthy. Once you turn 65, you can use HSA funds for any reason without tax penalty on your withdrawal. Just know that you pay ordinary income tax on the distributions. 

To maximize your HSA dollars, consider investing those funds. One of our favorite locations to do that is at Optum Bank

3. Open a Taxable Investment Account

After maxing out your IRA or HSA (or both!), a taxable investment account, often called a brokerage account, is another option to explore. These accounts don’t necessarily offer the same tax advantages as the IRAs or HSA, but they do offer you a better chance to compound your savings for retirement than having the money sit in a savings account. 

You can invest as little or as much as you want into a taxable investment account. Just remember that the earnings from these investments are subject to capital gains taxes. 

Taking the Next Step Towards Retirement

Time is one of the most important factors when it comes to building your retirement fund while working for a startup. While you’re young, time is on your side, but any time in life is a good time to be mindful of your retirement planning.

Don’t let the absence of a workplace retirement plan stand in your way. Schedule a call with an Abacus advisor to understand your retirement savings options and pick a plan to start saving and investing today.


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