Here I’ve compiled a list of accounts you can use to save for retirement if your job doesn’t offer a retirement plan.
If you own your company, the three below options are available to you in addition to the options that are available to regular individuals.
A sole proprietor can set up an individual 401(k) and make contributions as both the employer and employee, up to a total of $53,000 in 2016. Individuals age 50 or older are allowed an additional catch up contribution of $6,000.
SEP IRA. (Simplified Employee Pension)
This account is used primarily by the self-employed or small business owners. As the employer, you can contribute up to 25 percent of your income or $54,000, whichever is less, in 2017. These accounts are easier to set up than a solo 401(k). Contributions, are tax-deductible for the business and go into a traditional IRA held in the employee’s name. Only the employers can contribute to the account. Like a traditional IRA, the money in a SEP IRA is not taxable until withdrawal. If the business has employees, the employer must contribute for all who meet certain requirements. One of the huge advantage of a SEP IRA over a traditional or Roth IRA is the higher contribution limit. For 2017, business owners can contribute up to 25% of income or $54,000, whichever is less. Whereas with the Traditional and Roth IRA the annual contribution limit is $5,500.
Simple IRA. (Savings Incentive Match PLan for Employees)
This plan is allows employers with less than 100 employees to set up IRAs. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan. Employers must either match employee contributions or make unmatched contributions. An employee can contribute up to $12,500 in 2015, with an extra $3,000 allowed for those over 50.
Below I’ve listed out investment options for individuals that do not have their own company.
If your place of employment does not offer a retirement account these are very good alternatives, but you can still use these accounts if you’re contributing to your employer-provided retirement account. Keep in mind these accounts do not have the same contribution limit as a 401k account, but you’ll have far more choices as far as where you can invest your money.
If you do have an employer-provided retirement account and the investment options in that account are not very good, I recommend contributing enough to get your employer match then contributing to one of the below accounts until you reach the contribution limit. I recommend this only because you’ll have better investment choices in the below accounts. If you still have money you’re looking to invest in a retirement account I suggest you then contribute the additional money to your employer-provided retirement account since the contribution limit will be higher.
Anyone can contribute up to $5,500 a year to an IRA, or $6,500 if you’re over 50. The money grows tax-free. You can contribute to both an IRA and a 401k. IRA contributions can be deducted from your taxable income if you earn less than $71,000 annually as a single filers or $118,000 married filing jointly. For more information about IRAs, check out the article “The difference between Traditional IRA and ROTH IRA”.
This account is funded with after-tax dollars, this account is similar to the traditional IRA but you do not get a tax deduction for your contributions. The money grows tax-free, and you don’t pay taxes on withdrawals after you reach 59 1/2. Also there’s no mandatory withdrawal at age 70. For more information about IRAs, check out the article “The difference between Traditional IRA and ROTH IRA”.
Health Savings Account
The HSA is a high-deductible health insurance plan which allows you to pay for qualified medical expenses with pre-tax dollars. You can contribute up to $3,350 a year for an individual or $6,650 for a family. Individuals 55 or older, can contribute an additional $1,000. You can withdraw money from your account only to pay qualified medical expenses. Unused money, rolls over each year. At age 65, you can withdraw money for any reason without penalty, but you must pay income taxes on the money you withdraw if it is not for a qualified medical expense.
That being said, this account could be used tax-free in retirement to pay for medical expenses. Withdrawing money before you’re 65 for non-qualified medical expenses will result in a tax bill plus a 20 percent penalty. If you don’t need the money for medical expenses, once you hit the minimum investment amount, you can invest your money same as you would other retirement accounts.