You’ve probably read lots of advice about how to handle your 401(k) account. But nearly half of all private-sector workers don’t have access to a workplace retirement plan, according to AARP research. If you’re one of those people without access to a 401(k) plan, here’s how to build your own retirement nest egg.
The spousal strategy
If your spouse has a 401(k) plan but you don’t, consider socking away as much as you can afford as a family in your spouse’s plan. Even if you use only your spouse’s plan, you can still save a lot of money for retirement. For 2022, workers who are younger than 50 can contribute a maximum of $20,500 in a 401(k). Those 50 and older can put away another $6,500 as a catch-up contribution for a total contribution of $27,000.
Contributions to a traditional 401(k) account come out of your paycheck pretax, which lowers your taxable income. The money inside a traditional 401(k) plan will be invested and grow tax-free. You won’t owe taxes until you start taking withdrawals.
Some employers also offer what’s called a Roth 401(k). With a Roth account, contributions are made with after-tax money. So while your contributions won’t lower your taxable income now, you won’t pay taxes on future withdrawals.
The IRA strategy
If neither of you has a 401(k) plan, your next best bet may be an individual retirement account. In 2022, individuals can put $6,000 into an IRA; those 50 and older can invest an extra $1,000 catch-up contribution for a total of $7,000. Although you can’t contribute as much to an IRA as to a 401(k), an IRA can be a powerful retirement savings tool. At current contribution limits, a person who starts contributing at age 50 can sock away $105,000 in an IRA by age 65, excluding any investment returns on the principal; a couple could save $210,000.