Most advice for saving for retirement starts with contributing to a 401(k) plan or any type of retirement account provided by an employer. But what if you don’t have a retirement plan through work?
There are still retirement accounts available to you, each with special tax benefits. Where does it start?
Individual Retirement Account
An Individual Retirement Account (IRA) is open to anyone with earned income, which is income earned through employment or business. Other sources of income, such as investment profits and government benefits, are not considered earned income.
The primary benefits of saving for retirement in an IRA are tax benefits and tax-deferred growth. There are two main types of IRAs:
Traditional IRA. This type of IRA offers a tax break for contributions, which can reduce your taxable income for the year.
Ruth Ira. Although there is no clear incentive to contribute, withdrawals in retirement are tax-free.
A quick breakdown of traditional vs. Roth IRAs
There are also some special IRAs for more specific situations. These still come in traditional or Roth varieties. They are:
Wife Ira. If you’re a non-working spouse, you can open a spousal IRA in your own name to save for retirement. There are some guidelines to follow, such as making sure your spouse earns enough to cover both contributions.
Custodial IRA. This is an IRA opened for minors with earned income. It is administered by a guardian (usually a parent or guardian) until the child comes of age in their state.
Self-Employed Retirement Plans
If you run your own business, have a side hustle or do freelance work, you have access to another set of retirement accounts. Each has its own features, depending on your business revenue and how many employees you have.
As a bonus, these plans allow you to make contributions as both an employer and an employee, increasing how much you can set aside and invest for retirement.
Solo 401(k) If you own a business or are self-employed (other than your spouse), you can open this type of account.
September Era. If you are self-employed with few employees and have varying income throughout the year, you can look for SEPIRA.
SIMPLE IRA These are for businesses with up to 100 employees.
Additional investment accounts
Outside of accounts designed specifically toward retirement, there are other accounts you can add to your financial portfolio.
Taxable brokerage account. While there are no tax benefits to using a brokerage account, there are no contribution or withdrawal limits.
How to Save for Retirement Without a 401(k): A Roadmap
Focus on your IRA. Whether you choose a traditional or a Roth, you can focus on contributing up to the maximum annual amount in your IRA.
Explore self-employed retirement accounts. If you qualify for one of these accounts, consider which one best suits your needs and how much you can contribute as an employer and employee.
Consider additional accounts. Although you can only take out an HSA as part of a high-deductible health plan, one can open a taxable brokerage account to further invest in the stock market.
Automatic contributions to stay on track. Plan how much you can contribute to each of your accounts, and then make automatic contributions for consistency and to help you stay on track with your retirement goals.
