However, not everyone has access to a 401(k).
In fact,they can only be opened at work, and not all employers offer them.
As a result, you may have to save for retirement without a 401(k).
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Individual Retirement Account
Anyone who earns income can open an individual retirement account,(IRA).
Unlike a 401(k), these retirement accounts arent tied to your employment.
(Well dive into those shortly.)
But first, lets discuss the two types of IRAs:Traditional and Roth.
Both offer a sweet tax break, but in different ways.
Atraditional IRAlets you worry about taxes later.
You put money in your account today and enjoy tax-free growth until you make a withdrawal.
Youll pay income taxes when you pull money out.
How much you owe is based on yourtax bracketfor the year in which you made the withdrawal.
Like with most retirement accounts, there is some kind of catch.
You cant dive into the moneywithout penaltyuntil you are 5912 years old.
Because the money is intended for retirement, the government makes sure it stays that way.
Traditional IRA Facts
That last item is key.
However, not everyone can claim this deduction.
Roth IRAscome with a tax bite today but allow you to make withdrawals tax-free down the road.
You fund your account with after-tax money.
It grows tax-free and you wont owe any income tax when you make withdrawals.
However, you wont get a break at tax time; contributions to a Roth IRA arent deductible.
Roth IRA Facts
High-income earners cant contribute to a Roth IRA.
A perk of Roth retirement plans is you could withdraw contributions anytime, tax and penalty-free.
Otherwise, withdrawing investment earnings can trigger taxes and a 10% early withdrawal penalty.
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How Do You Open an IRA?
you’re free to open an IRA online without ever speaking with a human.
Robo-advisors and micro-investing apps make it super easy to get started.
Most offer useful retirement planning and personal finance tools to visualize and easily manage your investments.
Many robos charge an affordable 0.25% annual account fee with low or no account minimums.
With most investment platforms, youll get your choice between a traditional or Roth IRA or both.
Some offer a SEP IRA for self-employed workers, too.
Micro-investing appslikeStashandAcornsmake it easy to set up small, recurring contributions to an IRA.
Plus, you’re free to start investing with as little as $5.
Like robo-advisors, theyre easy to use, convenient and automated.
However, you might end up paying higher fees over time due to an apps monthly subscription model.
Think of it like a 401(k) for your health.
Its important to keep in mind that some HSA providers offer more and better investment options than others.
Some impose minimum balance requirements, transaction fees or investment fees.
Nearly all providers charge annual account fees.
Technically, it’s possible for you to open an HSA even if your employer doesnt offer one.
But you cant make contributions to the account unless youre covered by a high-deductible health plan.
You also cant add money if youre enrolled in Medicare or Medicaid either.
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Youll also pay tax on any dividend income.
But thats not always a bad thing.
Using a taxable investment account can actually make sense in some situations.
First, you could make withdrawals from a taxable account at any time, regardless of age.
So taxable accounts can be attractive if youre already maxing out your IRA or HSA.
Retirement Accounts for Self-Employed People
Small business owners and self-employed people get a few other retirement savings options.
Most major brokerage firms offer Simplified Employee Pension IRAs (SEP IRAs) and theyre easy to set up.
A formal written agreement is required, but the brokerage usually takes care of that for you.
That makes these accounts ideal for freelancers, solo entrepreneurs and gig workers.
A SEP IRA offers much higher contribution limits than a traditional or Roth IRA.
You get two opportunities to save as an employee, and again as the employer.
