Portfolios come in many different shapes and sizes, but your life savings only come once. Planning for your retirement is something you do not want to slip up on. While many employees simply invest in their company’s 401(k) plan, those that are self-employed have to take a different path.
Here are the five best ways to save for your retirement without needing an employer’s 401(k) plan, according to financial holding company Empower.
Traditional IRA
Empower suggests considering an individual retirement account. You can invest a portion of your savings into the account tax-free by deducting the investments from your tax returns. Once you turn 59.5 years old, however, withdrawals will be taxed as income. Adults under 50 can contribute up to $6,000 a year into a traditional IRA, and older adults can invest up to $7,000 a year.
SIMPLE IRA
If you are a small business owner, then a SIMPLE IRA may be best for you. A Savings Incentive Match Plan allows a business owner and employees alike under the age of 50 to contribute up to $14,000 a year. Older adults can contribute up to $17,000 a year. The business owner, however, must contribute 2% of every employee’s salary each year or match up to 3% of employee contributions.
SEP-IRA
Another option for small business owners is a SEP-IRA, or a Simplified Employee Pension. As compared to a SIMPLE IRA, only the business owner contributes to the account. The employer can contribute up to 25% of their annual salary, capped at $61,000. Empower suggests this financial approach for smaller businesses that are looking for flexibility.
Roth IRA
If a traditional IRA sounds appealing, but you would rather not worry about your taxes during your golden years, then a Roth IRA may be for you. A Roth IRA has the same contribution limits as a traditional IRA. However, your contributions are now tax deductible rather than your withdrawals. You pay the taxes as you invest so that you can enjoy tax-free withdrawals from the account during your retirement.
Solo 401(k)
If you are self-employed and have no employees, then a solo 401(k) is a great option. You can contribute up to $20,500 annually, like a normal 401(k), as well as a $6,500 catch-up contribution for adults 50 years old or older. You can choose a Roth version to pay taxes on your contributions or a traditional plan to pay taxes on your withdrawals.
No matter what you are considering, Empower suggests first speaking with a financial professional.
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