How do I Saving for Retirement Without a 401k ?

Author: AB Staff

How do I Saving for Retirement Without a 401k ?

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The benefits of starting a 401k for yourself, and starting one early, are immense. It is often the case that the money is taken directly out of your paycheck before it reaches you, making it impossible to spend on those all too tempting items we see around us all the time. In addition, you get tax breaks on standard 401k deposits, and some employers even contribute to your personal 401k. However, sometimes circumstances may not allow for the formation of a 401k. However, even without a 401k, it is still very much possible to save for retirement and accumulate enough to not only sustain yourself, but to truly enjoy your retirement. Here’s how: 

Tip 1 – Open an IRA:  

  • An IRA is a great way to shield some of your income from income tax. For those below 50, there is a cap of $6,000 however if you are 50 or above, you can place $7000 in your IRA account. In addition, married couples, regardless of if one or both work can each place in their respective maximum amounts. So if you and your spouse were both over 50 and were to each contribute the maximum to your IRA, you would be able to keep $14,000 protected from income tax. That being said, earnings on your investment can still be taxed

Here is some more information on IRA’s

  1. https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras
  2. https://www.nerdwallet.com/article/investing/learn-about-ira-accounts
  3. https://www.fidelity.com/building-savings/learn-about-iras/what-is-an-ira

Tip 2 – Open a Roth IRA

  • A Roth IRA is another great option that allows you to store money without having any tax on the interest accumulated. The trade-off for that however is that you can only put money into it AFTER taxes. 
  • While this may seem like a bit of a downside, if you are planning on keeping the money in your Roth IRA for a long time and accumulate interest, then this may be a good option for you. In addition, you do not have to pay any kind of fee or tax to withdraw the money from a Roth IRA once it is deposited there. 

Here are the Pros and Cons of an IRA vs. a Roth IRA:

https://www.nerdwallet.com/article/investing/roth-or-traditional-ira-account

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Tip 3 – Establish Direct Deposits

  • One of the best benefits of a 401k is that the money is directly deposited in your bank account before your paycheck is given to you. Even without a 401k, you can achieve a similar result through the use of direct deposit. 
  • By having direct deposit, it will electronically and automatically place a designated portion of your paycheck into a savings account of your choice. By manually restricting when you can withdraw funds from that account, you can create a safe storage place for part of your paycheck every time you get it. 

Here is how to set up a direct deposit:

Tip 4 – Set Up a Taxable Investment Account

  • While these funds will be taxed, you can continue to save large bulks of money after you have reached the cap on your Roth or regular IRA accounts. In addition, the tax rates for a taxable investment account are often much lower than for an IRA account, because when you liquidate your portfolio you will be paying a long term capital gains tax, which is often much more favorable on the investor. 

Here is some more information on Tax Investable Accounts:

There are many ways in which to save, even without a 401k. Whether it be through an IRA, Direct Deposits, or Investment Accounts, saving money for retirement is a totally attainable goal for everyone. And no matter what age, it’s never too late to begin to fund your retirement plan.