A Guide to Retirement
When planning for retirement, people usually think of 401(k)s and Roth IRAs, but there are a few other retirement plans available. Some are simple to access, while others are more complex or tailored to specific groups. Through this guide, you’ll be able to learn and better understand all the different retirement savings options.
1. Taxable Investment Accounts (Most Accessible)
Why It’s Accessible:
Taxable investment accounts are open to anyone. While they don’t come with contribution limits or tax-advantaged benefits like IRAs or 401(k)s, but they’re incredibly flexible.
How They Work:
You can open a taxable brokerage account through any financial institution, invest in stocks, bonds, mutual funds, or other assets, and withdraw funds at any time. While investment gains are subject to capital gains taxes, you have complete freedom over how much to contribute and when to withdraw funds.
Example:
A Brokerage Account at Fidelity, Charles Schwab, or Robinhood
Best for:
Anyone looking for flexibility in their investments, especially after maxing out other retirement accounts.
2. Traditional IRA
Why It’s Accessible:
A Traditional IRA is available to anyone with earned income, making it one of the most common retirement savings vehicles. It’s easy to open at banks, credit unions, and investment firms.
How It Works:
You contribute pre-tax dollars, and your money grows tax-deferred until you withdraw it in retirement, when it’s taxed as ordinary income. There are no income limits for eligibility, and contributions up to $6,500 per year (2024) are allowed, with an additional $1,000 catch-up for those aged 50+.
Best for:
Individuals looking for a straightforward, tax-deferred retirement savings option.
3. Roth IRA
Why It’s Accessible:
Like Traditional IRAs, Roth IRAs are widely available, but they come with income restrictions. If you earn below the limit ($153,000 for singles and $228,000 for married couples in 2024), you can open one easily at most financial institutions.
How It Works:
Contributions are made with after-tax dollars, so you won’t get an upfront tax break, but your money grows tax-free, and withdrawals in retirement are also tax-free. Contribution limits are the same as Traditional IRAs, but with the added benefit of no required minimum distributions (RMDs).
Best for:
People who expect to be in a higher tax bracket in retirement or prefer tax-free withdrawals.
4. Health Savings Account (HSA)
Why It’s Accessible:
If you have a high-deductible health plan (HDHP), you can open an HSA. This account offers significant tax advantages and is easy to set up through most banks or employers.
How It Works:
HSAs allow you to contribute pre-tax dollars, and the money grows tax-free. You can use it for qualified medical expenses at any time, but after age 65, you can withdraw funds for non-medical purposes (taxed like a Traditional IRA). Contribution limits are $4,150 for individuals and $8,300 for families (2024).
Best for:
Those with HDHPs who want to save for both medical expenses and retirement, enjoying triple tax benefits (deductible contributions, tax-free growth, and tax-free withdrawals for healthcare).
5. SEP IRA
Why It’s Accessible:
A SEP IRA is designed for self-employed individuals and small business owners, and it’s one of the easiest retirement plans to set up. There are no complicated paperwork requirements, and contributions are flexible.
How It Works:
You can contribute up to 25% of your compensation or $66,000 (2024), whichever is lower. Contributions are tax-deductible, and the funds grow tax-deferred until retirement.
Best for:
Self-employed individuals or small business owners who want a higher contribution limit than a Traditional or Roth IRA offers.
6. SIMPLE IRA
Why It’s Accessible:
The SIMPLE IRA is a retirement plan designed for small businesses with 100 or fewer employees. It’s easier to set up than a 401(k), and the employer must contribute either through matching or a fixed percentage.
How It Works:
Employees can contribute up to $15,500 annually (2024), with a $3,500 catch-up for those over 50. Employers must contribute either a match (up to 3%) or a 2% fixed contribution.
Best for:
Small business owners who want a simpler, lower-cost alternative to a 401(k) for their employees.
7. Solo 401(k)
Why It’s Accessible:
The Solo 401(k) is designed for self-employed individuals without employees. It has the same benefits as a traditional 401(k), but with lower administrative complexity.
How It Works:
You can contribute as both the employer and employee, up to $66,000 ($73,500 with catch-up for those 50+) in 2024. There’s also a Roth option for the employee portion.
Best for:
Self-employed individuals or freelancers who want a higher savings limit with the flexibility to make both employer and employee contributions.
8. Deferred Annuities
Why It’s Accessible:
Deferred annuities can be purchased from an insurance company, making them accessible to anyone willing to pay for them. They are a good option for those looking for guaranteed income in retirement.
How It Works:
You contribute funds over time or in a lump sum, and the money grows tax-deferred. In retirement, you receive a regular income stream. However, annuities often come with high fees and may lock up your money for long periods.
Example:
Fixed Deferred Annuity from New York Life
Best for:
Individuals who want guaranteed income in retirement and are willing to pay for the security.
9. Real Estate Investing
Why It’s Accessible:
While real estate requires a significant amount of capital and management, it’s a relatively common way to build long-term wealth for retirement. Investors can buy properties directly or invest in real estate investment trusts (REITs).
How It Works:
You buy rental properties for passive income and capital appreciation or invest in REITs for a more hands-off approach. Real estate lacks the tax advantages of retirement accounts, but it can provide significant diversification.
Best for:
Individuals with enough capital to invest in property and those who want to diversify their retirement portfolio outside of traditional financial assets.
10. Cash Value Life Insurance (Whole Life or Universal Life)
Why It’s Accessible:
Anyone can purchase cash value life insurance, but the high premiums and complexity make it less accessible for the average saver. The cash value component can grow over time, and you can borrow against it tax-free.
How It Works:
Premiums are paid into the policy, which includes a death benefit and a cash value component that grows tax-deferred. You can borrow against the cash value for tax-free income in retirement.
Best for:
High-income individuals looking for both life insurance and a tax-deferred savings component.
11. Thrift Savings Plan (TSP) (Least Accessible)
Why It’s Accessible:
The TSP is only available to federal employees and military members, making it the least accessible retirement plan for the general public. It offers low fees and both Traditional and Roth options.
How It Works:
Similar to a 401(k), the TSP allows participants to contribute up to $22,500 per year (2024) with a $7,500 catch-up for those over 50. Federal employees and military members may also receive matching contributions.
Best for:
Federal employees and military personnel who want a low-cost, tax-advantaged retirement savings plan.
Conclusion
Whether you’re self-employed, working for a company, or looking for flexible options outside of traditional retirement accounts, there’s a wide range of retirement savings vehicles to explore. The most accessible options, such as taxable investment accounts, Traditional IRAs, and Roth IRAs, are easy to set up and open to most individuals. For those with more specific needs, options like SEP IRAs, Solo 401(k)s, and real estate can provide significant retirement savings potential. If you want to best set yourself up for retirement, it’s important to understand what options you have and how to plan around them.