Access to a 401(k) is a huge boon to many people's retirement savings. The high contribution limits plus the possibility of an employer match give you a chance to build your nest egg quickly. You can also defer money from each paycheck so you don't have to remember to make manual contributions.
But if you don't have access to a 401(k), saving for retirement can be more of a challenge. However, you can still stash your extra cash in the following four accounts.
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1. IRAs
Anyone can open a traditional or Roth IRA with just about any broker to keep their retirement savings. In most cases, you can contribute up to $6,500 to one of these accounts in 2023 if you're under 50 or $7,500 if you're over 50. However, you cannot contribute more than you've earned in a year, and high earners aren't able to contribute directly to a Roth IRA.
You can technically have one of each type of IRA, but these contribution limits apply to your total IRA contributions for the year. It's generally best to favor the account you think will provide you the greatest tax advantages in the long run.
A traditional IRA might be a good fit if you expect your income to drop significantly in retirement. These accounts give you an upfront tax break, but you must pay taxes on your savings when you withdraw money later. If you think you'll be in the same or a higher tax bracket once you retire, a Roth IRA might be better. You'll have to pay taxes on your contributions when you make them, but you won't owe any taxes on your withdrawals in retirement.
2. Health savings accounts (HSAs)
Though health savings accounts (HSAs) are primarily intended for medical savings, you can also stash money here for retirement. You'll get an upfront tax break on your contributions this year, and you can make tax-free medical withdrawals at any age. You can also make non-medical withdrawals, but you will pay taxes on these, plus a 20% penalty if you're under 65.
These accounts are great places to keep money you plan to use for retirement healthcare costs. The government doesn't force you to take required minimum distributions (RMDs) from HSAs like it does from most other accounts. And unlike flexible spending accounts (FSAs), HSAs don't require you to use all your funds by the end of the year.
But not everyone can contribute to an HSA. To qualify, you must have an eligible individual health insurance plan with a deductible of at least $1,500 or a family plan with a deductible of at least $3,000.
Those who meet these criteria may contribute up to $3,850 in 2023 if they have an individual health insurance plan or $7,750 with a family plan. And those 55 and older can save an extra $1,000 beyond these limits.
3. Self-employed retirement accounts
Those who earn money through a side hustle or their own business can save money in a self-employed retirement account. There are several options, including:
Each account has its own rules, so review these carefully before deciding which to use. But they all have fairly high contribution limits, so it may be possible for you to save even more with one of these than you could with a 401(k). Keep in mind that you still can't set aside more money than you've earned during the year.
4. Taxable brokerage accounts
Taxable brokerage accounts aren't retirement accounts and don't provide the same tax benefits, so they may not be your best option for all your savings. However, they have a few distinct advantages over the other accounts listed here.
First, there are no rules on how much you can contribute to a taxable brokerage account. If you have the extra cash, you can invest it here for your future, regardless of how you earned it.
Second, you can take your money out at any time without penalty. Most retirement accounts make you wait until you're age 59 1/2 if you want to withdraw your funds penalty-free.
One of these accounts could make sense for you if you've already maxed out the other accounts you're eligible for. It's also a good fit for those who plan to retire early and want savings they can tap before 59 1/2.
You can also save using more than one of the above accounts. Consider all the options you're eligible for, and weigh the pros and cons of each. Then, open the account(s) you decide on if you don't already have them, and choose how much you'd like to contribute each month. See if you can set up automatic transfers if possible so you don't have to remember to make them on your own.
