What if your job does not offer a 401(K) account? Luckily for you in today’s market, you have a wide variety of options to choose from. It is pretty much the gold standard to find an employer that offers a 401(K) as part of their benefits package; however, some jobs such as freelancers, contract and other similar jobs will not have the luxury of a retirement account.
If you are lucky then your employer will offer some type of retirement account and if you are not, well this article is for you. Here are some other accounts you can use for your retirement savings.
DISCLAIMER – I am not a licensed tax advisor, lawyer or stock broker. I am simply a person who loves investing. Please consult a professional.
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Option 1: An IRA (individual retirement account)
An IRA, or individual retirement account, is a separate account you can open. Even if you have a sponsored employer account, you can still open this one or a Roth IRA account too. This account will not be tied to your employer and you can set it up quickly and begin investing for your retirement. Whether it is traditional or Roth, they come with nice tax benefits.
When looking into an IRA account, you will encounter two types. The first type is a traditional IRA. With this type you will put in pre-tax dollars into the account and pay taxes on the money you put in plus anything earned come retirement time. This kind of account can also let you enjoy benefits come tax time.
The other type is a Roth IRA. This kind of IRA will be funded by after-tax funds. Because they money you put into the account has already been taxed, you can enjoy retirement without paying taxes on the income you earn. In addition, anything earned such as dividends or interest, will be tax-free as well. Since this account is funded with after-tax funds, you cannot claim it come tax time.
The most you can put into these accounts for the 2023 tax year is $6,500 if you are under 50 years of age. If you are older you can contribute $7,500 each year. This amount applies to all IRA accounts you own, not each one.
Option 2: A taxable investment account
Now, if you set up an IRA I would also suggest opening a taxable investment account. $6,500 might seem like a lot of money but when it comes to retirement, it is not. You can easily max out your IRA each year and anything you would want to add you cannot. This is where the taxable account comes in.
If your goal is to save $8,000 to $10,000 each year for your retirement, having a taxable account, or brokerage account will allow you to put the difference to work. You can use the remaining balance for the year to invest in the same stocks that your IRA does except the brokerage account has no maximum contribution amount. This means if you want to go higher add more money you can do so at any time.
If you are going to go this route, I suggest opening your IRA account as well as your brokerage account with Fidelity. This way your finances are on one platform and easier to manage. In addition, I have been using Fidelity for years and I love their services.
Where you invest will change over time
As you go through life with all its journeys, tribulations and achievements, your financial goals will shift or change. You might find an employer who offers a 401(K) and now you have another account to manage. Will you Roll it over or leave it separate? These are the kind of things that you will encounter as you progress in life.
The important thing is you know where your investments are and that you are investing consistently. If you find yourself with an employer sponsored account later in life, I would suggest continuing to fund your IRA alongside with it. I am currently doing this right now with my Roth IRA and my company sponsored account. I contribute 15% of my income to my 401(K) and contribute $200 a month to my Roth. Once finances are in better shape I plan to max out my Roth each year with $542 per month.