No 401(k)? Save More for Retirement by Maxing Out These 2 Plans

No 401(k)? Save More For Retirement By Maxing Out These 2 Plans

You’ll need money outside of Social Security to make for a comfortable retirement. That’s pretty much a given, unless you’re somehow in line for a huge monthly benefit and expect to have very low living costs as a senior.

If you have access to a 401(k) plan, you’re in luck. These employer-sponsored plans come with very generous annual contribution limits, thereby allowing you to build up a solid nest egg to supplement your Social Security income.

Right now, 401(k) plans max out at $20,500 for workers under the age of 50. For those 50 and over, there’s a $6,500 catch-up allowance, which brings that total to $27,000. (And to be clear, you don’t need to be “behind” on retirement savings to be eligible for catch-up contributions.)

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Come 2023, these limits are increasing. Savers under 50 will be able to sock away up to $22,500 in a 401(k), while those 50 and over will see their catch-up contributions rise by $1,000. This will bring their total allowable annual contribution to $30,000.

The problem with 401(k) plans, though, is that not everyone has one. If you’re in that boat, don’t sweat it. There are two other tax-advantaged savings plans you can look to instead. And if you maximize both, you can set yourself up for a very comfortable retirement.

Max out your IRA

IRAs have much lower annual contribution limits than 401(k)s. Right now, savers under age 50 are limited to a yearly contribution of $6,000, while those 50 and over can contribute up to $7,000. Next year, these limits are only rising by $500 each, for a total of $6,500 for savers under 50 and $7,500 for those 50 and over.

All told, a $6,500 or $7,500 yearly contribution toward retirement savings might seem inadequate if you have aggressive goals. But if you combine your IRA with contributions to another key account, you can build yourself a really nice amount of all-in savings.

Max out your HSA

Not everyone is eligible for a health savings account (HSA) as you need to be enrolled in a high-deductible health insurance plan to qualify. But if you’re able to fund an HSA, it pays to max it out.

HSAs are technically designed to cover near- and long-term healthcare expenses. But something really cool happens to HSAs once you turn 65.

At that age, HSAs effectively convert to a traditional retirement plan. You won’t enjoy tax-free withdrawals if you use HSA funds to pay for non-medical expenses, but come age 65, you also won’t face penalties for non-medical withdrawals. As such, you can plan to use your HSA as a standard retirement plan and combine it with your IRA strategically.

The amount you can contribute to an HSA depends on whether you have self-only health coverage or family-level coverage. If you have self-only coverage and you’re under 55, you can contribute a maximum of $3,650 to an HSA this year and a maximum of $3,850 next year. If you’re 55 or older, you can add $1,000 to whichever limit applies to you.

If you have family coverage, your HSA contribution maxes out at $7,300 this year if you’re under 55 and $7,750 next year. But if you’re 55 or older, you can add on another $1,000.

A 401(k) isn’t your only good option

While it’s nice that 401(k)s allow for generous annual retirement plan contributions, you’re not doomed to be disappointed in your nest egg if you don’t have access to one. Instead, combine an IRA and HSA to build up enough savings to enjoy the comfortable retirement you’ve been dreaming of.

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