Think About an IRA
An IRA is a great option if your employer doesn’t offer retirement benefits. You can set one up with most brokerages and with some banks, choosing the type of investments you want to make. A financial adviser can help you decide on the best options for you. The savings limit for IRAs for tax year 2022 is $6,000 annually, increasing to $6,500 in 2023. It goes up to $7,000 and $7,500 respectively for those who are age 50 and older. Don’t give up if $500 per month seems like too much for your budget to handle. You can work to increase your savings amount each year until you can contribute up to the limit. You have the option of choosing a Roth or a traditional IRA. Your contributions are tax deductible, and the money grows tax free in a traditional IRA. You’ll pay income taxes when you take the money out in retirement. Your savings to a Roth IRA aren’t tax deductible, but you won’t be taxed on the money and its earnings when you take it out. That can be a huge benefit if you start saving at a young age. You’re only eligible to contribute to a Roth IRA in 2023 if you make less than $153,000 per year if you’re single, or $228,000 if you’re married and you and your spouse file a joint tax return. These limits are up from $144,000 for individuals and $214,000 for married couples in 2022. Both Roth and traditional IRAs are great investment options, but a Roth can be a better choice if you expect to be in a higher tax bracket when you stop working. A traditional IRA can be a better choice if you expect to be in a lower tax bracket when you retire.
Self-Employment Options
You can enroll in a SEP IRA or a solo 401(k) plan if you’re self-employed or an independent contractor. A SEP IRA is also a tax-advantaged retirement savings tool. Your pre-tax money is invested tax-deferred until you take it out when you stop working. One major benefit of a SEP IRA is the high contribution limit. It’s $61,000 in 2022, increasing to $66,000 in 2023, not to exceed 25% of your income.
Think About Switching Jobs
You may be willing to do without benefits when you start working if your goal is to gain experience, or because you really believe in a company. Some start-ups may not have retirement plans in the first few years, but they might plan to offer them later. You may want to think about switching jobs to a more established company to make the most out of your savings if you’ve been where you are for years with no change in benefits.
Investing Outside of Retirement Accounts
You don’t have to stop saving for retirement just because you reach your maximum allowed savings for the year. You can save with other investments. It doesn’t have to be an official retirement account. In fact, you’ll want to have a good portion of your benefits in separate accounts if you’re planning on retiring early, so you can access the money without being hit with an early withdrawal penalty. You aren’t allowed to take money from either an IRA or a 401(k) without a 10% penalty until you reach age 59½ but there are a few exceptions. You may want to retire sooner than that. Other investments will allow you to withdraw money before age 59½ to avoid the penalties.
Take Advantage of Other Benefits
Start-ups may offer other options, such as buying stock options instead of contributing to a retirement account. This can allow you to benefit from the growth of the company in the first few years. It can be a good option when it’s managed right. There are also rules for how soon you can sell your stock after purchasing it, so this should not be your whole retirement plan. These rules can vary by company. Some companies offer deferred compensation programs that allow you to defer pay until some future date, such as when you retire. This option lets you reduce your taxable income now. You’ll save money on income taxes, earn interest on the money, then take the money as either a lump sum or over a period of time when you decide you want it. The rules for participating in such a program and for how these programs are operated can be tricky. Consult with a qualified retirement planning specialist before you enroll.
