Where Can I Save for Retirement Besides a 401(k)?
Money Girl explains how you can save for retirement besides through a 401(k)
Laura Adams, MBA
Q. I have a 401(k) at work; however, I can’t max it out because I’m considered a highly compensated employee. What’s the point of this restriction and are there other ways to save for retirement on a pre-tax basis?
Answer. Certain workplace retirement plans must adhere to annual discrimination rules that can limit the amount of contributions made by highly-paid employees. These rules make sure that the plan offers benefits to everyone and not just the company’s highly paid executives, managers, and owners. Your contributions have been capped because lower-paid workers in your company aren’t participating in the 401(k), or are contributing a smaller percentage of their income when compared to that of higher-paid workers.
After contributing as much as you can to your 401(k), the next place to squirrel away money on a pre-tax basis is a traditional IRA. For 2012, you can contribute up to $5,000 (or $6,000 if you’re age 50 or older).
If you have additional money to put away for retirement, you can use an annuity to invest an unlimited amount of money on a pre-tax basis. An annuity is similar to a retirement plan because you defer taxes until you make future withdrawals.
Read or listen to What Is an Annuity and How Does it Work? and visit annuityfyi.com for more details.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.