Planning Your Retirement Without a 401(k)
AK Equity Group
When it comes to retirement, saving in a 401(k) plan is usually the gold standard. However, if you’re one of the millions who lack access to a 401(k) plan, there are other available tax-advantaged options.
A 401(k) plan is a tax-deferred retirement fund sponsored by select workplaces only. Some employers will match a percentage for every contribution made into the savings. According to The Pew Charitable Trusts, over one-third of workers in certain industries don’t have access to a 401(k) plan.
If you’re one of the millions of workers lacking access, you’re in luck! There are other available tax-advantaged savings options.
Individual Retirement Accounts (IRA)
IRAs are retirement savings accounts with a greater variety of investment options and tax benefits. Dividends, interest payments, and capital gains compound tax-free, so your funds will grow fast. You can choose from different brokerage firms to open your account. Almost anyone can open and fund an IRA with earned income. For couples, you can each open your own IRA, even if only one of you has earned income.
With IRAs, you can contribute up to $5,500 per person per year. If you are 50 years old or older, you can contribute up to $6,500 per year. There are different types of IRAs available depending on your need or situation.
The two most common IRAs are:
- May allow claim for tax deduction on contributions made.
- Pay taxes only when you withdraw funds during retirement.
- Withdraw contributions and earnings after the age 59.5 years old or older without any penalty.
- This account has no tax deductions.
- Any contribution made is with after-tax dollars.
- Withdraw contributions at any time tax-free.
- No taxes due on earnings or contributions when you are 59.5 years old or older and account has been opened for at least five years.
Individual Retirement Accounts have low contribution amounts, so it may be possible to reach the annual maximum contribution.
If you reach the maximum contribution and you still have money to invest, you can open and allocate those funds into a taxable brokerage account to accumulate stocks, bonds, and mutual funds. There are an unlimited number of accounts available, so you can select which ones best suit your need, preference, or circumstance. These accounts may not be tax-deferred, but there may be ways to minimize taxes. If you’re unsure, there are investment managers available to help manage the tax side. You can also find an advisor to help guide you in making trading decisions.