Advice about saving for retirement typically focuses on a 401(k). If your employer doesn’t offer that benefit, you can explore alternatives.
Other Retirement Plans Your Employer May Offer
If you work for a non-profit or tax-exempt organization, it may offer a 403(b) plan. That option is similar to a 401(k) and is used to invest pre-tax income for retirement.
If you’re a federal government employee, you can participate in the Thrift Savings Plan. Some plans allow workers to contribute pre-tax money, while others allow contributions after taxes have been withheld. The government may also make matching contributions.
Options to Explore on Your Own
With a Roth IRA, taxes are paid before you contribute, which means you won’t be taxed when you withdraw money in retirement, as long as you’re at least 59.5 years old and the account has been open for at least five years. However, there are both annual contribution and income limits.
If your income exceeds the limits for a Roth IRA, you can contribute to a traditional IRA. The annual contribution limits are the same, but there are no income limits. With a traditional IRA, you can start withdrawing money with no penalty at age 59.5 and will have to start making withdrawals by age 70.5. You won’t pay taxes on money before you make contributions, but you’ll have to pay taxes on withdrawals. Contributions to a traditional IRA may be tax-deductible in the year they are made.
If you want to open an IRA, look for a company that charges low fees. To boost your savings, you can contribute to both a Roth and a traditional IRA, as long as you don’t contribute more than the maximum allowable amount to either.
If you’ve invested the maximum amount allowed in a tax-deferred retirement account, you can contribute additional funds to a taxable investment account. A financial advisor can help you choose which types of investments to include in each account to minimize your tax liability.
An annuity is an investment vehicle offered by an insurance company. Money can grow at a fixed, variable or indexed interest rate, and distributions are taxed in retirement. An annuity can provide a steady stream of retirement income, but the performance of an individual fund depends on the company that issued it. Beware of companies that charge high fees and agents who steer clients toward products that might not be right for them to earn large commissions.
Create a Plan
If your employer doesn’t offer a 401(k), you still have many options to save for retirement. Talk to a financial planner and figure out which is best for you. The earlier you start saving, the better.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
