How Millennials Can Save for Retirement Without a 401(k)

When it comes to saving towards retirement, nothing is considered better than a 401(k) – especially if your employer offers contribution matching. Even a one percent employee match could end up contributing thousands of dollars towards your retirement by the time you hit 67. But what about when a 401(k) isn’t an option?

If you don’t have a 401(k) but still want to save towards your retirement, there are plenty of ways you can do so. Here we’ll look at some of the best ways you can get started.

 

Traditional IRA

A traditional IRA is sometimes considered an eligible tax deduction, which means you won’t owe as much at the end of the year. The downside? You can’t touch your money until you are at least 59.5 years old. If you do, you’ll get hit with stiff penalties that can severely decrease your overall retirement funds.

Currently, you can save up to $5,500 a year in a Traditional IRA if you are 49 or younger. People aged 50 or older can save up to $6,500 yearly.

 

Roth IRA

Unlike a traditional IRA, Roth IRAs are not tax deductible. The upside is that you can withdraw the money at any point during your retirement without paying taxes on it. You can also pull from your initial investment without penalty if you need the funds early – although you can’t touch any interest you’ve built.

Like a Traditional IRA, a Roth IRA will allow you to save up to $5,500 a year until the age of 50. Once you turn 50, you can begin to save an additional thousand annually.

 

Brokerage Account

A brokerage account is the best way to save some extra money. There are no limits to how much you can save, and you can access it at any time if an emergency arises. The money is not tax deductible, however. Most experts recommend using a brokerage account with either a Traditional or Roth IRA, to save additional funds.

 

Individual 401(k)

An individual 401(k) is open to anyone who is self-employed. This includes business owners, as well as freelance individuals. It is only open to business owners without employees, however – such as those who operate Esty shops, e-commerce sites, etc. on their own.

The contributions made by self-employed individuals are tax deductible, and there are remarkably high limits as to how much can be saved annually.  You can save as much as $18,500 per year plus up to a quarter of your income, so long as your total yearly contributions do not exceed $55,000. If you over the age of 50, the income limits are even higher.

 

SEP IRA

A final option is to open up a SEP IRA, which is only available to individuals who are self-employed. Your contributions are tax deductible, but the limits are much stricter than an individual 401(k) plan. Freelancers are allowed to contribute up to 20% of their total income, while business owners are allowed to contribute up to a quarter of theirs.