Saving for retirement is an important part of a long-term financial plan, even if you don’t get 401 (k) help on the job.
In 2020, some 33% of workers in the private sector did not have access to an employer-sponsored pension plan, according to data from the Bureau of Labor Statistics. Part-time workers, those in the service sector, and those with the lowest wages were the least likely to save retirement assistance from their employer.
Fortunately, there are ways to save for retirement outside of a traditional employer-sponsored 401 (k) plan.
Traditional Roth and IRAs
Often the first thing advisers advise for people who don’t have employer-sponsored 401 (k) is to open a Roth Individual Retirement Account, where you will establish your contributions with after-tax dollars.
“I love Roth IRAs for young investors,” said Tess Zigo, certified financial planner at Emerge Wealth Strategies in Lisle, Illinois. Later.
Saving money in a Roth IRA means the money will grow tax-free, meaning you won’t have to pay anything to withdraw the money in retirement. People using a Roth IRA can also withdraw a good deal of money each year. In 2021, if you’re 50 or older, you can save a total of $ 6,000 or $ 7,000 in a Roth IRA.
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Of course, there are some limitations. In 2021, your adjusted adjusted gross income must be less than $ 140,000 for single tax filers and less than $ 280,000 for jointly married people to qualify.
If you have taxable earnings, you can also save for your retirement in a traditional IRA, which allows you to defer taxes, such as a 401 (k). It makes sense that if you’re in a higher tax bracket now, you will be later. In 2021, the contribution limit for a Traditional IRA is $ 6,000 or $ 7,000 if you are 50 or older.
And, if you or your spouse don’t have 401 (k) through work, some contributions you make to a traditional IRA are deductible based on other aspects of your finances.
One of the benefits of these accounts is that they can give investors more freedom in deciding how they are going to invest their money than a traditional employer sponsored 401 (k). In an IRA, investors can usually choose their own stocks, bonds, mutual funds, exchange traded funds, etc., rather than choosing from a limited number of options as part of their plan.
“You really have a full open architecture in terms of the investments you can make with a Roth IRA,” said Rob Greenman, CFP and director of development and partner at Vista Capital Partners in Portland, Oregon.
Of course, this can also be a problem for investors if they are trying to synchronize the market, choose riskier investments, or don’t have a balanced portfolio, he said, so caution is always in order.
regular brokerage accounts
If you don’t want to open an IRA, you can also save for your retirement in a traditional brokerage account, where you can invest in the markets to make your money grow over time.
This option will give you the most freedom in terms of contributions and withdrawals, but it will also mean that you won’t get the tax benefits you see in an IRA. If you trade on a regular brokerage account frequently, you might be faced with a large tax bill, which won’t happen if you use a Roth IRA.
“The only thing that is better than membership is tax-free membership,” Greenman said.