How to save for retirement if you don’t have a 401(k)

It should be called retIRAment (IRA and retirement)KJ: How DO you plan for retirement and save when there aren’t any options with your employer? What happens if the 401(k) (or 403(b) for those public workers) everyone pines for isn’t even an option for you? Surely there have to be ways around this, so you too can save for and enjoy a comfortable retirement, right? Well, the good news is that there still are tax-advantaged ways of saving for retirement despite not having an employer retirement plan at work. Check out our post on IRAs for some additional reading.

I think the key thing to recognize about whether you do or do not have a tax-efficient way of saving for retirement is that you are saving for retirement, period. It may be a long ways off, but with the compounding effect of interest, you’re a sucker to not let time be on your side and invest early. Start early…like REALLY early!

SEP IRA
If you are a contract worker, there is something called a SEP IRA (Simplified Employee Pension). You can take your happy little 1099 earnings for the year and contribute (typically) up to 25% (nice little caveat there since it is slightly less for those who are self-employed) of your income up to a maximum savings of $51,000 for 2013 (or $52,000 for 2014)…and that’s a LOT of retirement contributions. Do your best to contribute the full 25%, and work with your accountant to make sure you’re maximizing this as an option.

As an aside, you have until your tax filing deadline (including extensions – i.e. up until October of the following year) to make a contribution for the prior tax year.

Traditional IRA
For 2013 and 2014, you can contribute up to $5,500 per person into a Traditional IRA. However, depending on your income (or family’s income), you may not be able to deduct all of your contribution from your tax-return. Just because you can’t deduct it from your taxes, doesn’t mean you shouldn’t contribute! However, if you can’t deduct it, but you can participate in a Roth IRA, then a Roth IRA would likely be a better fit for you.

Roth IRA
Again, you can contribute up to $5,500 per person into a Roth IRA for 2013 and $5,500 per person for 2014. Do note that this limit of $5,500 applies to the TOTAL of your contributions between Traditional IRAs and Roth IRAs, and it’s not for EACH account, so you can split up the contributions however your heart desires (or you know, what the tax man says you can).

Good old savings account
Like I said earlier, just because you don’t have a tax-advantaged way of saving for retirement (or are no longer eligible due to income limits), doesn’t mean you should stop or not contribute. In fact, quite the opposite. Without a tax-advantaged way of saving for retirement, you should be saving more to account for the fact that you can’t benefit from those advantages. Yeah, more savings! 🙂

Your savings account dedicated for retirement should likely not just be sitting in a little old bank account, so you should look for options to invest the money and get some more long-term growth. Your comfort, experience, and tolerance for investing will help guide the ship for where to go and what to do (find an advisor, manage yourself, stocks, bonds, fluffy bunnies – wait, what?).

Another important feature about a good old savings (or investment) account is that what it lacks in tax advantages, it gains in flexibility for you to use the funds for other goals, retirement, education, new pool, and more!

Now it’s your turn! Join in the discussion and let us know if you have a retirement plan at work (and whether it’s the greatest thing since sliced bread – or not, ya know) or if you have had to explore other options. We’d love to hear what your experiences are!

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  1. Pingback: State of the union: what is MyRA? Success or failure? What we know now. | The Simple Money Blog

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