Without a 401(k) via your employer, saving enough money for retirement can be difficult, but it is certainly doable. If you want your money to grow tax-free, you can open a savings account or a Roth IRA instead. If 2022 is still a year in which you hope to contribute to your retirement fund, here are options to consider.
Most people who are not able to have a 401(k) plan will instead open an individual retirement account (IRA), to which they can contribute as much of their annual income as they choose. Moreover, if you’re married and haven’t worked, but your spouse has, you can contribute to their IRA with their earnings to pay both of yours.
Compared to other retirement funds, IRAs are flexible. You can pick how to invest your money and when to take a tax break. Traditional IRAs lower taxable income this year, but retirement withdrawals are taxed. Roth IRAs don’t offer an upfront tax reduction, but withdrawals are tax-free.
IRAs allow prior-year donations through April 18, 2023, for the 2022 tax year. Suppose you determine in early 2023 that you should have made a more significant IRA contribution this year. In that case, you can deposit money and ask your IRA provider to designate it as a 2022 contribution. Do this before filing your tax return, or you’ll have to file an updated return.
Contribution limits are IRAs’ worst flaw. In 2022, you can save $6,000 or $7,000 if you’re over 50. 401(k) investors can set down $19,500 ($26,000 for those 50+). Contribution limitations apply to all accounts of the same type, not individually. If you want to save more than $6,000, combine an IRA with another account.
High-deductible health plans can use HSAs. In 2022, that means a $1,400 deductible for a person or $2,800 for a family. You can open one with numerous banks or brokers if you’re eligible and contribute up to $3,650 for an individual plan or $7,300 for a family plan. 55-plus adults can add $1,000.
You won’t pay taxes if you utilize an HSA for medical costs at any age. HSAs are also popular retirement accounts since they work like a typical IRA after age 65. You can make non-medical withdrawals at this age without paying the 20% early withdrawal penalty that adults under 65 pay.
Invest your HSA funds if you plan to utilize them for retirement; your balance will grow slowly. Medical expenses should be avoided wherever feasible and if you have to use your HSA early, try to make up for it by increasing future contributions.
Unlike retirement accounts, taxable brokerage accounts have fewer restrictions. You can invest as much as your budget allows in whatever you like, and this is a good option for those who choose to retire before 59 1/2. For early withdrawals, most retirement funds levy a 10% penalty.
Long-term capital gains tax applies if you hold investments for more than a year. This reduces how much you owe the government when you sell your assets, so it’s wise for retirees.
You can also link many accounts together if that makes more sense, as described above. It’s essential to think things through and get your contributions in before the year ends. Also, think about saving in the above accounts in 2023 when you construct your savings plan for the coming year.