Don’t worry. You still have plenty of options.
With high contribution limits and the possibility of an employer match, it’s tough to beat a 401(k) for retirement savings. But that doesn’t mean you’re doomed to struggle if you don’t have access to one. There are plenty of other retirement accounts you can turn to, some of which have perks you won’t find with a 401(k). Here are four you should consider.
1. IRA
Individual retirement accounts (IRAs) are usually the go-to account for those who don’t have access to 401(k)s. Anyone can open and contribute to one as long as they’re earning income during the year or are married to someone who is.
IRAs give you more freedom to invest your money how you’d like than 401(k)s, and you can change your investment strategy as often as you’d like. You also get to choose when you’d like to pay taxes on your funds. Traditional IRAs give you a tax break up front but require you to pay taxes on your withdrawals later, while Roth IRAs require you to pay taxes on your contributions up front in exchange for tax-free withdrawals in retirement.
The biggest drawback to saving in an IRA is that you can only set aside up to $6,000 in 2022, or $7,000 if you’re 50 or older. This is well under the $20,500 contribution limit ($27,000 for adults over 50) for 401(k)s. But you can always pair an IRA with one of the other retirement accounts listed here if you’d like to set aside more.
2. Self-employed retirement accounts
If you earn income through your own business or a side hustle, you’re eligible to open a self-employed retirement account. There are several options out there, all of which have different benefits and drawbacks. Review all the plans available to you before deciding which is right for you.
Like IRAs, self-employed retirement accounts give you complete control over what you invest in. This is helpful for those who are trying to keep their fees down.
Self-employed retirement accounts may also enable you to contribute a lot more than even a 401(k) would. In 2022, you can contribute up to the lesser of 25% of your net self-employment income or $61,000 with many self-employed retirement accounts. Those who earn a lot of money through their own businesses can grow their retirement savings much more quickly with a self-employed retirement account than they could with most of the other accounts mentioned here.
3. Health savings accounts (HSAs)
Health savings accounts (HSAs) aren’t intended for retirement savings, but they make a great home for them nonetheless. HSA contributions reduce your tax bill this year, and you can withdraw the money tax-free for medical expenses at any age. You can also make non-medical withdrawals, but you’ll pay taxes on these plus a 20% penalty if you’re under 65.
You need a high-deductible health insurance plan to open an HSA. That’s one with a deductible of $1,400 or more for an individual or $2,800 or more for a family. As long as you’re eligible, you can contribute up to $3,650 in 2022 if you have an individual plan or $7,300 if you have a family plan. Adults 55 and older can tack an extra $1,000 on to these limits.
Whenever possible, you should invest your HSA funds. This helps your money grow much more quickly, and that’s exactly what you want when you’re using your HSA as a retirement account.
4. Taxable brokerage account
Taxable brokerage accounts also aren’t retirement accounts, but they can still help you grow your savings. While they don’t offer the same tax benefits as the accounts mentioned above, you can save a little on taxes if you hold onto your funds for at least one year before withdrawing them. Then, your earnings become subject to long-term capital gains tax, which means you’ll lose a smaller percentage to the government than you would have if you had to pay short-term capital gains tax.
Taxable brokerage accounts give you complete freedom to invest and withdraw your funds whenever you want. There are also no contribution limits. This makes it a great choice for those who want to set aside large sums for retirement and those who plan to retire before age 59 1/2. Most retirement accounts charge penalties if you take money out before this age, so those who plan to retire sooner should think about stashing some of their savings in a taxable brokerage account to avoid this.
You don’t have to limit yourself to just one of the accounts above, either. You can mix and match as you see fit and move money between accounts over time. You could also pair one of these with a 401(k) if you become eligible for one at some point. Just be sure that you understand the rules for each account you use so you don’t accidentally make a costly mistake.
