Think you’re out of luck if your work situation doesn’t come with 401(k)? It’s time to start planning for retirement on your own with one of these savings options.
Imagine where you’ll be when you retire. Will you be sitting on a sunny porch, sipping a fruity drink and soaking in the sun? Or will you be roaming the world, investigating every off-the-beaten path place you can find, and sampling local delicacies? Or maybe practicing your golf swing or keeping up with your grandkids?
People have all sorts of ideas of what they’d like to do in retirement. But, to be able to put the working world aside and focus on these goals, you’ve got to have money in the bank. means starting to save now, not later or someday.
How can you put aside enough cash to fund your post-retirement lifestyle? From the traditional to the DIY, we’ve got a handful of options for you to discuss with your family or financial planner. ( to tweet these options.)
The traditional route: 401(k) and 403(b)
So, what is a ? It’s important to understand what these are before running through the comparisons. With either of these options, companies put cash aside for you before you receive your paycheck. This money is “pre-tax” and many companies offer different types of matching options.
A 401(k) is usually used in the for-profit sector, while 403(b) accounts are typically found in the nonprofit world, and often used by teachers.
In 2015, the maximum pre-tax amount you can place in one of these accounts is $18,000 (which increases to $24,000 if you’re 50 or older).
But what if you work for a company that doesn’t offer retirement plans as a part of your ? What if you’re self-employed, and the only benefits you get are the ones you pay full-price for?
You’re not out of luck. You just have to choose the retirement planning alternative that’s right for you.
Retirement saving alternatives
Here are a few alternatives to 401(k) plans to help you save for retirement. Of course, consult with a financial advisor before deciding what works best for you. Details and deposit limits change often, so be sure to have the most up-to-date information when you make your decisions.
This list just shares some of the highlights, so be sure to use to find the most up to date information and determine your best options.
If you’re a sole proprietor, this option lets you make both the employee and employer plan pre-tax. And the limits are much higher with this option than with a traditional 401(k), allowing you to put aside $53,000 per year in 2015 — or $59,000 if you’re 50 or older.
An IRA lets you deposit up to $5,500 a year ($6,500 if you’re 50 or older), and the cash grows tax-free. However, the rules get a little more complicated if you also have an employer-sponsored retirement plan.
If you earn over $71,000 annually (or $118,000 for a married couple) and have a work-based retirement plan, these contributions are generally not tax deductible. If you earn more than $61,000 (single) or $98,000 (married), you may be able to receive a partial deduction.
This option is generally used by people who work for themselves or have a small business, and the acronym stands for “simplified employee pension.” you can contribute up to $53,000 of your income or 25 percent of your earnings, whichever amount is smaller. But be aware that this option may require you to make contributions for your employees, if you have them.
This is a very popular option for freelancers. You put money in your after you pay taxes on it — and then you don’t have to pay any taxes when you withdraw your money after the age of 59.5.
If you want to withdraw money earlier than your 60th birthday, you can withdraw the amount of your original contribution (but not the extra money earned) without taxes or penalties.
Not everyone can use a Roth IRA, though. You must earn less than $131,000 if you’re single ($193,000 for married couples). If you earn over $116,000 (single) and $183,000 (married), then you can only contribute a reduced amount each year. While you can have both a traditional IRA and a Roth IRA, the contribution limits apply to all of your IRA accounts together.
Health savings accounts
Health savings accounts, or HSAs, are one often-for retirement planning. These accounts are only available for people who have high-deductible healthcare plans; the money in the HSA is meant to help with pricey deductibles and expenses that aren’t covered. Some employers offer HSAs (and many match contributions up to a certain level) or you can get one on your own if you have an eligible health insurance plan.
An HSA can cover anything from contact lenses to doctor’s visits, medications to co-pays. However, you can also pay those expenses out of pocket and since it’s a savings account that earns interest. Keep your medical receipts, though, because you can be reimbursed for those healthcare-related expenses far after the fact.
You deposit money pre-tax money into your HSA — you can put aside up to $3,350 a year for a single person, and $6,650 per family. The money is treated differently depending on whether you withdraw it for medical needs or other purposes. If you take out money for medical needs, you will not pay taxes or penalties on it. However, if you withdraw the money for other reasons, you’ll pay taxes on it (plus a 20 percent penalty if you’re under 65).
Have you designed your own retirement plan? Which components did you choose?
Kristen Pope is a freelance writer and editor in Jackson Hole, Wyoming.