Building Wealth Without a 401(k)
For many Americans, a 401(k) plan is the cornerstone of retirement planning. Contributions are made before taxes, reducing your tax bill and ensuring you save for the future. Plus, many employers offer matching funds and automatic contribution increases, making it easy to invest more over time. But what if you’re one of the millions without access to a 401(k)? Don’t worry – you still have options.
Setting Your Retirement Goal
Before choosing an account, determine how much you need to save to achieve your desired retirement lifestyle. Consider your current spending habits and how they might change in the future. You won’t need to save for retirement, but you may need to budget for increased healthcare costs. Online calculators can help you arrive at a realistic target.
Exploring Alternative Retirement Accounts
Just about anyone with an income can open an Individual Retirement Account (IRA). Three popular options are Traditional, Roth, and SEP IRAs.
- Traditional IRA: Contributions are tax-deductible, and you can contribute up to $5,500 ($6,500 if you’re 50+) in 2018. However, you’ll face a 10% penalty and income taxes if you withdraw early.
- Roth IRA: If you meet the income requirements, you can contribute up to $5,500 of after-tax income. Your money grows tax-free, and you can withdraw it tax-free in retirement. You can access your contributions anytime without penalty.
- SEP IRA: This simplified employee pension plan allows self-employed individuals to make large pre-tax contributions for themselves and their employees. You can contribute up to $55,000 or 25% of your compensation, and deduct at least a portion of your contributions today.
Solo 401(k) Plans
If you’re self-employed, consider a Solo 401(k) plan. With no age or income restrictions, you can contribute up to $55,000 (plus $6,000 if you’re 50+) in 2018. You can choose between traditional pre-tax contributions or a solo Roth 401(k) with after-tax cash. Just be aware that you can’t have any employees except a spouse.
Regular Brokerage Accounts
Once you’ve maxed out your IRA or Solo 401(k), you may need another investment option. A regular, taxable brokerage account offers no contribution limits or restrictions, but keep in mind that frequent withdrawals can hinder long-term growth.
By exploring these alternatives, you can still build wealth and secure your financial future – even without a 401(k).
Leave a Reply