A 401(k) is all fine and dandy...if your employer offers it. Gone are the days of cushy pension plans, and many of today's employers can be a little skimpy skimp on sponsored retirement benefits.
So, what do you do if you don’t have one?
Have no fear! There are plenty of ways you can save for retirement without a 401(k). Check out these top three alternatives and get your retirement savings swerve on.
No, we're not talking about the Irish mob...we're talking about Individual Retirement Accounts (IRAs)!
IRAs are similar to 401(k)s, but without the employer’s bucks helping you out. A “traditional” IRA is a union between your retirement savings and a tax break (as God intended!). With this type, you won't pay taxes on the money until you start taking out the cash when you retire.
In what’s called a “Roth IRA” (which we’ll call “non-traditional” for contrast) you pay taxes right off the bat, before you put the money into the account. After letting your money live in your account for at least five years, you’ll be able to pull out money tax free. If your money (like your love...) has grown... then that will probably be a noice tax break.
Keep in mind that, for all of these accounts, you’ll need to be 59 1/2 to be able to take money out. Unfortunately, the IRS won’t let you identify as whatever age you feel like after sleeping on an old futon. (We tried.)
There are also limits to how much you can put into your IRA each year. In 2022, you can contribute up to $6,000 per year. If you're 50 or older, your limit increases to $7,000 to allow you to "catch up" as you get closer to retirement.
HSA stands for health savings account. HSAs are designed to be used for healthcare-related expenses, however they can be used for retirement savings, too!
But do NOT confuse the HSA with its wishy washy cousin...the FSA (flexible spending account). While the HSA is more like a savings account where your money can safely stay until you need it...if you have money left over in an FSA at the end of the year, it vanishes into thin air.
Now, you can’t take money out of an HSA for everything and anything...that, is until you’re 65 years old. Until then, you can use the HSA to pay for medical expenses. But if you use it to pay for other things, even if that other thing is a taco truck for an orphanage (awww, you’re so noble!), you’ll need to pay fees for the amount you withdraw.
Just like IRAs, HSAs have limits on how much you can contribute each year. For 2022, individuals can contribute up to $3,650 a year and families can sock away up to $7,300. Anyone 55 and older who wants to play catch-up is allowed to put in an extra $1,000 a year.
A brokerage account is finance-bro speak for a "non-retirement account". In other words, you can withdraw money from a brokerage account without the same pre-retirement age fees and penalties as an IRA. That being said, they also don't come with the same tax benefits, so make sure to keep that in mind. Also, any money earned within a brokerage account is also subject to capital gains taxes. (Starting to see a pattern? Tax, tax, and more taxes.)
Brokerage accounts are great for people who max out their yearly contributions in the other accounts mentioned. Think of them as an extra retirement piggy bank! However, investments within brokerage accounts can also be a little bit riskier than those in retirement accounts. Some might be tied to more high-risk stocks in the market, which could mean losing a pretty penny if things go south.
With brokerage accounts and even retirement accounts, it never hurts to get in touch with a financial professional to make sure you're making the right moves. If you're looking for free resources, check out The Foundation for Financial Planning. Now, get to saving!
Guess what? The President can influence things that impact retirement...but not as much as your local & state government reps! Here’s three small things you can do that make a BIG impact:
