How Do I Save for Retirement If My Employer Doesn't Offer a 401(k)?

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One of the most common pieces of advice is to start saving for retirement as soon as you start working. However, that may not be as easy as it appears. Some jobs have a waiting period of six months or a year before you can start contributing to the 401(k) it offers. Other smaller companies or startups may not offer a retirement plan at all. If you are an independent contractor or self-employed, you are responsible for your own benefits, and you may be wondering how to start saving for retirement.

Consider an IRA

An IRA is the best option if your employer does not offer retirement benefits. This can be set up with most brokerages, and some banks. You can choose the type of investments that you want to make and you may ask a financial adviser to help you determine the best options for you. Many brokerage firms are willing to waive the initial investment amount if you set up an IRA with a monthly contribution amount. In 2016, there is a limit of $5500, a year, which breaks down to $458.00 a month. This is quite a bit and may be more than you can manage with your first job, but you can work to increase that amount each year. You also have the option of choosing a traditional IRA or a Roth IRA. With a traditional IRA, you can claim your contributions on your taxes, which can be beneficial since it lowers your taxable income. However, with a Roth IRA, you will need to pay taxes on your contributions, but you can withdraw the money tax free, which lowers the amount that you pay in taxes overall.

Self- Employment Options

If you are self-employed or an independent contractor, you have additional retirement options. You can enroll in a SEP-IRA or a solo 401(k) plan. This allows you to contribute up to 25 percent of your earnings or up to $53,000 whichever is the lower of the two numbers, in 2016.

A brokerage firm can help you set these up. It is also a good idea to talk to your accountant about the best options for your retirement savings so that you can take advantage of as many tax breaks as possible while you are saving for retirement.

Consider Switching Jobs

When you first start working, you may be willing to go without some benefits to gain experience or because you really believe in a company. Some startups may not have retirement plans in the first few years but plan to offer them after that. You may want to consider switching jobs to a more established company once you have worked there for a few years. This can give you more benefits and increase the amount that you can contribute each year to retirement.

Investing for Retirement Outside of Retirement Accounts

Just because you reach your maximum allowed contributions, it does not mean that you have to stop contributing to retirement. You can save for retirement with traditional investments without it being in an official retirement account. In fact, if you are planning on retiring early, you will want to have a good portion of your retirement benefits in separates accounts so that you can access the money without receiving an early withdrawal penalty.

You are not allowed to withdraw from either an IRA or a 401(k) until you are 59½ without a ten percent penalty.  As you investment, you can just make a note of which accounts are specifically for retirement so that you do not use them for things like your down payment on your home.

Take Advantage of Other Benefits

If you are working for a startup, they may offer other options, like buying stock options, instead of a retirement account. This can allow you to benefit from the growth of the company in the first few years. This is a good option, but you need to handle this option correctly. You should not have all of your investment in just one type of stock. It is too risky, especially with a startup.  However, there are rules about how soon you can sell your stock after purchasing it, and it varies by the company.

You need to time it so that you get the biggest possible profit. If you do decide to keep some of the stocks, be sure that you diversify the rest of your portfolio so that you will not lose everything if something were to happen to the company.