KristaG tweets: Looking for info regarding saving for retirement if I have no access to a 401(k) and I've maxed my IRA.
Krista, you’re not alone, especially if you work for a small company. While 94% of employers report offering a retirement plan, such as a 401(k), to their employees, a majority of these companies employ 1,000 workers or more. A separate survey finds that 70% of small firms provide no retirement savings program whatsoever.
While you miss out on the tax advantages and potential matching policy that typically accompany a traditional employer-sponsored 401(k) savings plan, you can patch together a smart and viable retirement strategy on your own. Consider these moves in addition to investing in a traditional IRA to fortify your retirement nest egg.
Invest in a Roth IRA for tax diversity. A traditional IRA, which you already have, allows you to contribute – pre-tax -- up to $5,500 this year. If you’re over 50, the limit is $6,500. This is a great way to save for retirement and reduce your taxes today. Your withdrawals in retirement are then subject to federal income tax.
Similar to a traditional IRA, a Roth allows you to contribute up to $5,500 a year for retirement, but the contributions are funded with after-tax dollars. So at age 59 ½ you can begin withdrawing all the money from the account tax- and penalty-free. If you anticipate being in a higher tax bracket upon retirement, a Roth may help you save down the road. Note: The IRS sets income requirements in order to qualify for a Roth.
Invest in a taxable brokerage account. It may not carry the tax benefits of an IRA, but a brokerage account filled with a diverse mix of stocks, bonds and mutual funds, lets you access your earnings at any time penalty-free. (A tip: Consider adding low-cost index funds to the mix). There are also no income limitations or rules on how much you can contribute each year. To minimize your tax exposure, assume a buy-and-hold strategy, or at least avoid cashing in on any investments within a year to pay a lower long-term capital gains tax. In 2013, the capital gains and dividend tax is: 0% if you fall into the 10% to 15% tax bracket; 15% if you’re in the 25% to 35% tax bracket; and 20% if you’re in the new 39.6% tax bracket.
Consider alternative investments. If you have money left over and have an appetite for risk, alternative investments like real estate, art and start-up funding, have the potential to advance your overall retirement plan. But these types of investments should comprise no more than 5% to 10% of your portfolio since they come with a good deal amount of risk.
Delay your Social Security checks. Finally, boost your retirement earnings by delaying Social Security. The longer you wait to collect your check, the more you can earn. Depending on when you were born, your “full retirement age,” at which point you can begin collecting your “full” Social Security check could be 65, 66 or 67. Each year you delay your benefit, you can see about an 8% increase in payout, according to the Social Security Administration. Benefit increases apply until you reach the age of 70, so ideally you want to wait until then.
Michelle tweets: What are the best credit card options for a graduate student to establish credit?
Consider opening up your first credit card with a bank or issuer that, first and foremost, you like and respect and that makes you feel like a valued customer. This doesn’t mean that they’ll put your school’s logo on the card. It means that the issuer will offer favorable terms like low interest rates, no annual fee and great customer service. Ideally, you’ll want to keep this card open and active for a long time, which can help nourish your credit score.
Because you’re a credit newbie it may be difficult to convince an issuer to load your first card with a sizable credit limit of, say, over $5,000. And because having ample credit in your name can help boost your credit score, make sure to find out how much credit each issuer is willing to provide prior to signing up.
Ben Woolsey, director of marketing and consumer research at CreditCards.com, who studies credit card offers, recommends cards that aim to help young adults build good credit. These cards carry no annual fees and reward students with either points or cash back for paying their bills on time: Citi Forward Card for College Students and Journey Student Rewards Card from Capital One.
Send Farnoosh your money questions. Email her at FarnooshFinFit@yahoo.com or send her a Tweet @Farnoosh.