Saving enough for retirement can be a struggle if you don't have access to a 401(k) through your job, but it's not impossible. There are several other accounts you can stash money in to grow your wealth and even earn some tax breaks today. Here are four to consider if you still want to make some retirement contributions for 2022.
An IRA is most people's go-to option if they don't have access to a 401(k), because anyone can contribute to one as long as their annual income equals or exceeds their IRA contributions. And if you're married, you can contribute to a spousal IRA even if you haven't worked as long as your spouse has earned enough in 2022 to cover their IRA contributions and yours.
IRAs are also pretty flexible compared to other types of retirement accounts. You have a lot more freedom to choose how you invest your money, and you can also choose when you'd like your tax break. Traditional IRAs reduce your taxable income this year, but then you must pay taxes on your withdrawals in retirement. Roth IRAs don't give you an upfront tax break, but they allow for tax-free retirement withdrawals.
IRAs also enable you to make prior-year contributions up until the tax deadline — April 18, 2023 for the 2022 tax year. If you decide in early 2023 that you wish you would have made a larger IRA contribution for this year, you can throw some money in the account and ask that your IRA provider classify it as a prior-year contribution for 2022 rather than a 2023 contribution. But it's best to do this before you file your tax return for the year or you'll have to file an amended return.
The biggest thing working against IRAs is their low contribution limits. In 2022, you may only set aside $6,000, or $7,000 if you're 50 or older. That's a fraction of the $19,500 ($26,000 for adults 50+) that 401(k) savers can set aside. Remember, the contribution limits apply to all accounts of the same type, not to each one individually. So if you'd like to save more than $6,000, you'll need to pair an IRA with another one of the accounts listed here.
2. Health savings account (HSA)
Health savings accounts (HSAs) are an option for those with high-deductible health insurance plans. That's defined as a deductible of $1,400 or more for an individual or $2,800 or more for a family in 2022. If you're eligible, you can open one with many banks or brokers, and contribute up to $3,650 if you have an individual health insurance plan or $7,300 if you have a family plan. Adults 55 and older may contribute an extra $1,000.
Money you put into an HSA reduces your taxable income for the year, and if you use it for medical expenses at any age, you won't pay taxes on it at all. But HSAs are also becoming popular as retirement accounts because they operate similar to a traditional IRA once you turn 65. At this age, you can make non-medical withdrawals without paying the 20% early withdrawal penalty that adults under 65 pay, though you must pay taxes on the money if you do this.
Make sure you find an HSA provider that will enable you to invest your funds if you plan to use it for retirement savings. Otherwise, your balance won't grow very quickly. You should also avoid withdrawing funds for medical expenses if possible. And if you have to tap your HSA earlier than expected, try to increase your contributions going forward to make up for it.
3. Self-employed retirement accounts
Self-employed individuals have access to a number of special retirement accounts. Some of the most common are:
You may be eligible to contribute to one of these if you have your own business. This could include a side hustle where you're classified as a contractor instead of an employee. Each account has its own rules and limitations, so it's important to understand these before you open a self-employed retirement account.
4. Taxable brokerage account
Taxable brokerage accounts don't offer the same tax breaks as retirement accounts, but they also have fewer restrictions. Your budget is the only limit on how much you can invest and you can invest in whatever you like. You can also withdraw the money at any time, making this a smart choice for those who plan to retire before 59 1/2. Most retirement accounts charge you a 10% early withdrawal penalty for taking money out before that age.
If you hold your investments for longer than one year before selling, your earnings become subject to long-term capital gains tax. This can reduce how much you owe the government when you finally sell your investments, so it's a smart play for retirement savers.
As mentioned above, you can also pair a few of these accounts together if that suits you. Take some time to review your options and then try to make your contributions by the end of the year. And if you're not able to make that happen, keep the above accounts in mind for 2023 and begin planning your savings strategy for next year.
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