For people without 401(k), most retirement advice are irrelevant as almost all recommendations are to save in that account. The reality, however, is much different than the ones peddled out by consultants. Almost 35 percent of employees in the private sector do not enjoy access to any employer-sponsored retirement schemes, like the 401(k). These leaves the employees bereft of a number of benefits when it comes to saving money for retirement, like pretax contributions, employer matching dollars, and also automatic salary referrals.
The good news is that there is no need for a 401(k) to get the same benefits from a retirement account. The easiest way to compensate is to get an Individual Retirement Account or the traditional IRA or a Roth account. These accounts can be opened by oneself or via an online broker. These permits a maximum investment of up to $5,500 per year. If the contributor is 50 years old or more, then the maximum amount changes to $6,500. Similar to the 401(k)s, the IRAs come with accompanying tax benefits. Traditional IRA offers an upfront deduction on taxes imposed on contributions. The former will be paid only post-retirement. However, the Roth can be accessed with certain income restrictions. There is no initial tax deduction in Roth, and no taxes are imposed on qualified distributions.
The individual concerned can use income from self-employment to save more. The IRA $5,500 may not be sufficient. Even if steady contributions are made for a period of 40 years, the end balance will be only a little below one million dollars at an average annual return of six percent. In case the individual enjoys a side income or is self-employed, it may be worthwhile to save in solo 401(k) or SEP IRA. The two permits any individual to save much more than the standard IRA. The limit, as of now, is $54,000 as of 2017. However, this amount is restricted to a component of the self-employed income.
Health Savings Account
A Health Savings Account (HSA) comes with a health insurance plan. The latter is highly deductible as well. The money invested in the HSA is also tax deductible. It increases unencumbered of tax. The distributions for the qualified medical expenses are not subject to tax. The aim of this account is to pay for all the medical expenses. The contributions can usually be invested. This makes the dollars remaining unused to increase. It will accumulate like any other kind of investment account.