It is probably safe to say that most investors have access to an employer-sponsored retirement plan such as a profit sharing, 401(k), stock bonus or money purchase pension plan. Tax and federal laws have made it easy for businesses of nearly any size to establish a retirement savings option for their employees. Still, sometimes businesses may not offer a retirement plan, but that doesn’t mean an investor should stop saving for retirement.
If you find yourself without an employer-sponsored retirement plan, you can take advantage of a tax-deductible IRA. If you are single and not covered by a plan at work, you can take a full deduction for your contribution up to the amount of your contribution limit—$5,500 for those 49 and younger, $6,500 for those 50 and older. If you are married filing jointly and your spouse is covered by a retirement plan at work, your adjusted gross income must be $184,000 or less to take the full deduction. The deduction limits then phase out as your AGI reaches $194,000 and are gone once you reach the $194,000 threshold.
You may also consider a Roth IRA if your income is less than $117,000 for single filers or $184,000 for married filers. Roth IRA contributions do not provide any immediate tax benefits, but you will be able to enjoy tax-free growth of your assets. You can also have more than one IRA, choosing to split your savings between both a traditional IRA and a Roth IRA to take advantage of both tax-deferred and tax-exempt growth. However, your total deposited in all of your IRAs is limited to your annual contribution limit.
One of the best overlooked features of a 401(k) or employer-sponsored retirement savings account is that your contributions are taken from your paycheck before you even see the money in your account, making your savings seem automatic. You are not consciously having to set aside money for retirement before you pay your bills. The good news is that you may be able to do the same with your IRAs. Most employers offer direct deposit, and many will allow you to split your paycheck to be deposited in two different accounts. You can arrange to have a portion of your income directed to your IRA accounts; therefore, it never hits your operating checking account. As you become accustomed to living on less per paycheck, saving becomes easier because you never see the money.
In your IRA, your investment choices are not nearly as limited as you may have had with an employer plan, as you can generally invest in mutual funds, exchange-traded funds, individual stocks, real estate investment trusts and bonds to name a few. Specialized custodians may also choose to allow higher-risk investments, such as initial public offerings, limited liability companies, partnerships or even precious metals.
You can also save to a brokerage account, but any gains or dividends will be taxable to you. Taxable brokerage accounts require a little more work when it comes to managing your tax liability, as you may be able to offset gains with losses.
Some investors may also consider annuities, which may be able to provide cash flow in retirement. Anyone considering an annuity needs to understand that they are buying an investment product, not a plan, and should carefully read and understand the terms before investing. A financial adviser can help you determine if an annuity product fits in your overall investment plan.
Overall, investors have many tools available to them to save for retirement if an employer plan is not available. If you have questions on how you should be saving for retirement, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
Disclosures: This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
