How To Save For Retirement Without Your Employer’s Help

At Financial Finesse, we help people make the most of their employer’s benefits to improve their retirement preparedness. But we recently received a comment on one of our Facebook posts from someone whose company doesn’t offer retirement benefits. If you’re in a similar situation, what can you do? Here are some options:

IRA: If you’re self-employed, there are actually a lot of different tax-advantaged retirement accounts you can set up and contribute to. If you work for a company that doesn’t offer a retirement plan, you can at least contribute up to $5,500 (or $6,500 if you’re over 50) to an IRA. Since you’re not covered by an employer’s retirement plan, you can deduct the contributions to a traditional IRA no matter what your income is.

myRA: This is a new type of government Roth IRA that’s available to people who don’t have access to an employer’s retirement plan and whose income is below $129k for an individual or $191k jointly. It allows you to contribute directly from your paycheck and invest in a special government securities fund that’s normally only available in the retirement plan for federal employees. The account has no fees and is guaranteed not to lose value. (After 30 years or once your account reaches $15k, you’ll be required to roll it over into a private sector Roth IRA.)

HSA: If you have access to a high-deductible health insurance plan either through work or through the Affordable Care Act exchanges, you can contribute up to $3,350 per person or $6,650 per family (plus an extra $1,000 if you’re age 55 or older) to an HSA (health savings account). The contributions are tax-deductible and the money can be used tax-free for qualified health care expenses. If you use the money for non-medical expenses, it’s subject to taxes plus a 20% penalty but the penalty goes away once you reach age 65, turning it into a tax-deferred retirement account that’s still tax-free for health care expenses (including Medicare and qualified long term care insurance premiums). You might even want to try to avoid using the HSA even for medical expenses and invest it to grow for retirement.

US Government Savings Bonds: Each person can purchase up to $10k per year in Series EE US Government Savings Bonds and up to $10k (plus another $5k from tax refunds) in Series I Savings Bonds. These bonds can be good conservative options for retirement savings since they are guaranteed by the federal government, do not fluctuate in value, and are tax-deferred. However, you can’t cash them in the first 12 months and you lose the last 3 months of interest if you cash them in the first 5 years. Right now, they’re only earning a fixed .3% for Series EE bonds and the current inflation rate (0% now) for Series I bonds but Series EE bonds have a guaranteed return of at least 3.5% annualized after 30 years, which is higher than the 30 year treasury bond yield without the market risk.

Regular Account: If you’ve maxed out your other options, you can always invest for retirement in a regular taxable account. You can minimize taxes by investing in tax-free municipal bonds if you’re in a high tax bracket and keeping capital gains taxes low by holding individual securities for at least a year or choosing low turnover funds like index funds and ETFs. You can also use losses to offset other taxes, including up to $3k per year from regular income taxes (with the excess carried forward indefinitely). Just be aware that if you repurchase an identical investment within 30 days, you won’t be able to take the loss off your taxes.

Regardless of how you choose to save for retirement, the most important thing is that you save enough. That means running a retirement calculator to see how much you need to save and then setting up an automatic transfer from your bank account to your retirement account for that amount to mirror payroll contributions. If you can’t save enough now, try gradually increasing your savings rate each year. Like it or not, your ability to retire depends on you.

 

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