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Beyond a 401(k): Other Ways to Save for Retirement

Retirement planning can feel complex, but it doesn’t have to be. Here’s an overview of the types of retirement accounts available today.

October 8, 2021

You have likely heard about the importance of retirement planning. Indeed, setting money aside to save for the future is one of the most powerful steps you can take towards a more secure retirement. 

But what if you don’t have a 401(k) at work — or you’re already maxing out your 401(k) and looking for more options? Let’s explore the other types of retirement investment strategies. 

Below, we’ll outline the types of retirement accounts, their benefits and if they’re the right fit for you.

Types of retirement accounts

Retirement accounts offer powerful tax benefits, and there are two broad categories of these accounts:

  • Pre-tax. These accounts, such as a 401(k) or IRA are pre-tax, or tax-deferred. This means that you don’t have to pay income taxes on the contributions made to these accounts. But, you’ll pay income taxes when you withdraw the funds (and tax on the earnings from your investments). 

  • Post-tax. The other side of the coin is post-tax, like a Roth IRA. This means that you’ll pay income taxes on the contributions you make to these accounts, but you won’t pay any income taxes when you eventually withdraw the funds (and the earnings from your investments). 

There are many different types of retirement savings accounts to choose from. The most common include: 

  • 401(k)

  • IRA (Individual Retirement Account)

  • Roth IRA

  • Self-directed IRA

  • 403(b)

  • 457(b)

  • SIMPLE IRA

  • Solo 401(k)

  • SEP IRA (Simplified Employee Pension)

Read on for an overview of each retirement account, including benefits, maximum contributions and more. 

401(k)

Who qualifies? 401(k) accounts are only available to eligible employees through their employers. Check with your employer to see if a 401(k) account is available at your workplace. 

Annual maximums. $19,500 per year up until age 50. For those over 50, the maximum increases to $26,000 per year.

Tax advantages. When you file taxes, the amount contributed to your 401(k) each year is deducted from your taxable income. Investments in a 401(k) can grow tax-free, but withdrawals in retirement will be subject to income tax. 

IRA (Individual Retirement Account)

Who qualifies? Any individual with earned income. Earned income must come from employment or business activity. This income excludes unemployment payments, social security, interest/dividend income and other sources of unearned income. 

Annual maximums. $6,000 per year until age 50, then $7,000 per year. You can’t contribute more than your earned income for the year. For example, if you make $4,000 in a year, you can only contribute $4,000 to your IRA.

Tax advantages. Each year, the amount contributed to your IRA retirement account is deducted from your taxable income when you file your income taxes. Earnings grow tax-free until you withdraw them. 

Roth IRA (Individual Retirement Account)

Who qualifies? Any individual with earned income. Earned income must come from employment or business activity, which excludes unemployment payments, social security, interest/dividend income and other sources of unearned income. 

Annual maximums. $6,000 per year until age 50, then $7,000 per year. You cannot contribute more than your earned income for the year.

Tax advantages. Earnings grow tax-free in the account and aren’t subject to income tax when withdrawn. However, there is no up-front deduction or tax savings in the year you contribute to a Roth IRA. 

Self-Directed IRA

Who qualifies? Any individual with earned income. Earned income must come from employment or business activity; it excludes unemployment payments, social security, interest/dividend income, and other sources of unearned income. 

Annual maximums. $6,000 per year until age 50, then $7,000 per year. You cannot contribute more than your earned income for the year.

Tax advantages. The amount contributed to your IRA each year is deducted from your taxable income when you file your income taxes. Earnings grow tax-free until you withdraw them. Self-directed IRAs allow you to invest in alternative asset classes, such as precious metals, real estate or cryptocurrencies. 

403(b)

Who qualifies? 403(b) accounts are only available to employees of charities and other tax-exempt organizations. They function similarly to a 401(k).

Annual maximums. $19,500 per year up until age 50. For those over 50, the maximum increases to $26,000 per year.

Tax advantages. The amount contributed to your 403(b) each year is deducted from your taxable income when you file your income taxes. Investments can grow tax-free, but withdrawals in retirement will be subject to income tax. 

457(b)

Who qualifies? 457(b) accounts are only available to employees of state and local governments. They function similarly to a 401(k).

Annual maximums. $19,500 per year up until age 50. For those over 50, the maximum increases to $26,000 per year.

Tax advantages. The amount contributed to your 457(b) each year is deducted from your taxable income when you file your income taxes. Investments can grow tax-free, but withdrawals in retirement will be subject to income tax. 

SIMPLE IRA

Who qualifies? SIMPLE IRA accounts are available at select employers with fewer than 100 employees. To be eligible, you must have earned at least $5,000 from your employer in the previous year, and expect to earn at least $5,000 in the current year. 

Annual maximums. $13,500 per year up until age 50. For those over 50, the maximum increases to $16,500 per year.

Tax advantages. The amount contributed to your SIMPLE IRA each year is deducted from your taxable income when you file your income taxes. Investments can grow tax-free, but withdrawals in retirement will be subject to income tax. 

Solo 401(k)

Who qualifies? Self-employed individuals and business owners who do not have any employees. 

Annual maximums. $58,000 per year up to age 50. For those over 50, an extra catch-up contribution of $6,500 is added, bringing the total limit to $63,500 per year. 

Tax advantages. Each year, the amount contributed to your solo 401(k) is deducted from your taxable income when you file your income taxes. Earnings grow tax-free until you withdraw them. 

SEP IRA

Who qualifies? Self-employed individuals and business owners, with or without employees. 

Annual maximums. Up to 25% of your compensation, or $58,000, whichever is less. 

Tax advantages. The amount contributed to your SEP IRA each year is deducted from your taxable income when you file your income taxes. Earnings grow tax-free until you withdraw them. 

How many retirement accounts can I have?

In most cases, it’s not how many accounts you can have at once but how many accounts you can use at once. 

There is a limit on how much money you can contribute to all your retirement accounts in a given year. This limit depends on several factors, including:

  • Employment status

  • Income level (higher-income earners are disqualified from contributing to certain retirement accounts)

  • Age (those over 50 are generally allowed to contribute more to retirement accounts than their younger counterparts)

The limits also differ for pre-tax retirement accounts, like 401(k)’s, and tax-free retirement accounts (TFRA retirement accounts) such as the Roth IRA. 

If you plan to use multiple retirement accounts, speak to a certified public accountant (CPA) or a financial advisor.

Investing for retirement and paying off debt are the two most powerful things you can do for your financial future.

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