Saving money for retirement is necessary if you want to have a comfortable one. A downside of this is that not all employers offer the most popular tool for retirement savings—the 401(k). The good news is that several other tools are available to help you save for retirement.
The Individual Retirement Account (IRA)
You can start putting your retirement contributions into an IRA. Many banks and other financial institutions offer these retirement savings plans. Automatic payments can be subtracted from your paycheck and put into the account each month. All contributions are tax-deductible, but you will pay taxes in retirement when you withdraw the money.A Roth IRA
Another retirement savings account nearly identical to the traditional IRA is the Roth IRA. It differs from the traditional one in that it has income limits on who can contribute to it and get the full deduction. A married couple filing jointly must earn less than $240,000 in 2024. Singles must earn less than $161,000, and married filing separately must earn less than $10,000 to get the deduction.The Health Savings Account (HSA)
A health savings account is another tool available to save money for retirement. Before getting one, you need to have a high-deductible health plan (HDHP) and not have other coverage. The high-deductible plan enables your premiums to be lower than traditional health plans.A high-deductible health plan must have a minimum deductible of $1,600 to qualify and $3,200 for a family. The contribution limit for individual coverage in 2024 is $4,150; for a family, it is $8,050. The Internal Revenue Service (IRS) says the maximum deductible for single coverage is $8,050 and $16,100 for a family. If you are over 55, you can contribute an extra $1,000 annually.
The Self-Employed Also Have Options
The Solo 401(k)
If you are self-employed, you can take advantage of a solo 401(k). It is very similar to a traditional 401(k). You can contribute many times more in a solo 401(k) than an IRA. The limit for 2024 is $23,000, but if you are 50 or older, you can add another $7,500.As an employer and employee of your own company, you can contribute even more. Solo 401(k) owners can also make company contributions equal to 20 percent (or 25 percent) of their net income from your business. Combined with your employee contributions, you can add up to $76,500 each year to your retirement account.
A Roth solo 401(k) is also available. You contribute after-tax money, which enables you to withdraw money later without taxes, and there are no required minimum withdrawals.
Calculating How Much You Will Need
Before choosing what method to use for retirement savings, you should take some time to find out how much you will need. People are living longer now, and inflation is always a factor you must consider. A retirement calculator can help you get more realistic numbers.When you need to find an alternate way to save for retirement, you not only need to consider the options—but dig a little deeper and find out which lenders offer lower fees. You will be able to save more money when you do.