4 Ways to Save for Retirement Outside of a Workplace Plan
By Joe Globensky, RFC®
Save for Retirement Outside of a Workplace Plan
National Retirement Planning Week is April 8 – 12, 2019. And with statistics like:
- Only 55% of Baby Boomers have money saved for retirement1, or
- 58% of Generation X haven’t tried to calculate how much they need to have saved by the time they retire2,
you can understand why a whole week is devoted to the subject.
In a previous blog post, I highlighted saving for retirement through a workplace retirement plan. But, only 40% of us have access to these plans. And some of us have access but want to save more to strengthen our future retirement. This blog post is for those who want to save for retirement outside of a workplace plan.
The first way to save for retirement outside of a workplace plan is to open your own retirement account. Individual retirement accounts (IRAs) and Roth IRAs may be your best option for tax-deferred growth, and potentially tax-free withdrawals with the Roth IRA. These plans can be established with a small initial amount, typically $250, and allow for regular contributions as little as $50.
Health Savings Account
Another way to increase retirement savings is to fund a health savings account. If you have a high-deductible health plan through your employer, you also have access to a health savings account. Your contributions to this account are from pre-tax money, can count towards your retirement savings, and don’t have to be spent by year-end like a flexible spending account. Upon achieving a minimum balance, you may be able to invest in mutual funds for potentially higher returns on your money.
Taxable Investment Account
Want to save even more for retirement but in a more flexible account? Open a taxable investment account. While this account may not grow tax deferred, the account can be managed to minimize tax implications. You also won’t have some of the age restrictions that come with more traditional retirement accounts. You can typically open these with small initial amounts and regular contributions similar to the retirement accounts listed above.
College Savings Plan
And finally, another way to save for retirement outside of a workplace plan is a College Savings Plan. While many might not consider a college savings plan as a way to save for retirement, if you have children, this can be a great way to preserve your current retirement savings, and future retirement income, from rising college costs. Depending on your state of residence, you may also qualify for a state tax deduction when using your state plan. These plans can be invested based on your child’s age, earnings grow tax deferred, and if used for qualified educational expenses, can be withdrawn tax free.
However you choose to save for your retirement, you should:
- Develop a retirement plan and save
- Learn the basics of financial planning
- Consider consulting a financial professional
At Connections Financial Advisors, we are committed to retirement and financial planning. And we do this in a truly comfortable and educating experience as we empower you to meet your financial goals. Get started today by scheduling a meeting or call with one of our advisors.
1 Boomer Expectations for Retirement 2016, Insured Retirement Institute, April 2016
2 Don’t You (Forget About Means): Third Biennial Study on the Retirement Readiness of Generation X, Insured Retirement Institute, March 2016
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All investing involves risk including loss of principal.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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