There is no reason for alarm if you do not have access to a 401(k). However, you will need funds to supplement your Social Security benefit to retire comfortably, unless you are one of the lucky few who are incredibly wealthy.
A 401(k) provides a wealth of benefits, so if you have one, you’re lucky. These employer-sponsored plans include extremely high yearly contribution limits, allowing you to accumulate a substantial nest egg to supplement your Social Security income.
401(k) plans currently have a maximum contribution limit of $20,500 for individuals under 50. The catch-up allowance for people aged 50 and above is $6,500, bringing the total to $27,000. To qualify for catch-up contributions, it is not necessary to be “behind” on retirement savings.
These limitations will increase in 2024. Those under 50 can contribute up to $22,500 to their 401(k). Those above 50 will increase their catch-up contributions by $1,000, bringing their total annual donation limit to $30,000.
However, the issue with 401(k) plans is that not everyone has one. If you are in this situation, do not worry. There are two other tax-advantaged savings schemes available. And if you optimize both, you may secure a very comfortable retirement.
Max out your IRA
401(k)s have substantially higher yearly contribution limitations than IRAs. Currently, savers under age 50 are restricted to a $6,000 annual contribution, while those over 50 can give up to $7,000. Next year, these restrictions will increase by merely $500, to $6,500 for people under 50 and $7,500 for those over 50.
A $6,500 or $7,500 annual commitment to retirement funds may seem inadequate if you have ambitious ambitions. But if you combine your IRA contributions with contributions to another significant account, you can amass a substantial sum of total savings.
Max out your HSA
Health savings accounts (HSAs) are only available to people with high-deductible health insurance plans. But if you can finance an HSA to its maximum, you should do so.
HSAs are theoretically intended to cover both immediate and future healthcare costs. However, after you hit 65, something extremely great occurs to your HSA.
At this age, HSAs transform into standard retirement plans. If you use HSA funds to pay for non-medical costs, you will not receive tax-free withdrawals, but after age 65, you will not be penalized for non-medical withdrawals. Consequently, you may use your HSA as a conventional retirement plan and strategically combine it with your IRA.
The amount you may contribute to an HSA depends on whether you have coverage for yourself just or coverage for a whole family. If you are under 55 and have self-only coverage, you may contribute a maximum of $3,650 to an HSA this year and $3,850 next year. Your applicable maximum can be increased by $1,000 if you are 55 or older.
If you are under 55 and have family coverage, you may contribute a maximum of $7,300 to your HSA this year and $7,750 next year. However, if you are 55 or older, you can receive an additional $1,000.
A 401(k) is not your sole viable retirement savings choice. While it’s good that 401(k)s allow for substantial yearly contributions, you’re not condemned to be dissatisfied with your nest egg if you lack access to one. Instead, combine an IRA and HSA to accumulate sufficient funds for the happy retirement you’ve been imagining.