Alternatives to a 401k
One of the most important things to think about when it comes to retirement is whether or not retirement is a financially viable option for you. This means that over the course of your working life, you should be investing in some kind of retirement plan. Traditionally, this would be a 401(k), but the options are endless! Here are just a few:
Traditional IRA: This is one of the most popular options when it comes to saving for retirement. A traditional IRA allows you to put money into an account where the money can grow tax-free, meaning you only have to pay taxes on that money when you withdraw it. Contributions to this type of account can also be deducted from taxable income-- that means you don’t have to pay taxes on that income today, either! The biggest drawback is that if you’re under 50, the maximum amount you can contribute to that account every year is $6,000.
Roth IRA: Like a traditional IRA, a Roth IRA is tax-free. However, contributions to this type of account are made after-tax, meaning that your income gets taxed before being added to the account. A Roth IRA also has an annual maximum of $6,000. However, this type of account gives you more freedom in terms of how you use the money than a traditional IRA.
SEP-IRA: A Simplified Employee Pension IRA is best for those who are self-employed, own a business, or do freelance work. The key benefit of this type of account over a traditional or Roth IRA is that the contribution limit is either $58,000 or 25% of eligible income per year-- whichever amount is less.
Solo 401(k): A solo 401(k) is only for business owners with no employees (except for your spouse), but it’s a great option if you have your own side gig. Like the SEP-IRA, you can contribute up to $58,000 per year. The biggest perk of this plan is that if you’re making enough money from your main job, you can contribute 100% of the earnings from your side business.
Health savings account: This plan was originally created for Americans with high-deductible health plans, but they offer a huge benefit for anyone who can become covered by Medicare, as long as your deductible is a minimum of $1,400 for individual coverage. HSA plans allow individuals to contribute up to $3,600 per year, and you get a tax deduction just for contributing to the account. Once you hit age 65, you can also use this account for non-medical expenses without penalty.
Taxable brokerage account: This type of plan allows you to invest in whatever you want and choose your own broker, and there is no limit to how much you can contribute. Unlike many other investment opportunities, however, your employer will not be able to match your contributions. This income is also taxable and contributions are made after-tax.
Real estate: Purchasing rental properties can be a good option if you’re good at making sound purchases. As long as you have people renting your property, you know you’ll have cash flow. However, this can also be a risky option, as the real estate market is not stable.
Invest in a business startup: This option has the potential to be incredibly successful but is also a huge risk. You don’t have to invest much, and if the startup is successful, it could be bought by a larger company and you could have a large financial gain. If the startup fails, however, you lose that money.
There are a lot of options when it comes to retirement funds, and it can be hard to decide which options are best for you. If you’re ready to start investing for retirement, contact Peter Brunton today-- he has a wealth of knowledge and is ready to help you get on the right path to retirement!
