What Are My Retirement Plan Options If I Have No Plan Through My Employer?

Tax-sheltered retirement accounts help maximize your retirement nest egg.
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Anyone can put aside money for retirement, but only certain retirement accounts receive special tax advantages. Don't despair if your employer doesn't offer a retirement plan such as a 401(k) or 403(b). You still have several options that can help you receive tax breaks for retirement. Knowing the types of accounts you can participate in allows you to maximize your retirement savings.

Traditional IRAs

Traditional IRAs allow contributions by anyone with earned income who is under 70 1/2 at the end of the calendar year. Earned income refers to wages, salaries, commissions or self-employment income, but not investment or interest income. If both you and your spouse lack an employer-sponsored retirement plan, your entire contribution qualifies for an income tax deduction regardless of your income. However, if your spouse has an employer-sponsored plan, you can deduct only your traditional IRA contribution if your income falls beneath the annual limits.

Roth IRAs

Like traditional IRAs, Roth IRAs also require you to have earned income to make a contribution. However, Roth IRAs do not impose any age restrictions. Income limits apply to your ability to contribute to a Roth IRA even if neither you nor your spouse have an employer plan, and these limits vary depending on your filing status. You won't get a tax deduction for contributing to a Roth IRA, but qualified distributions are withdrawn tax-free, including any earnings on your contributions.

Self-Employed Plans

If you have self-employment income, you can set up your own retirement plan with higher contribution limits, such as a simplified employee pension plan or a savings incentive match plan for employees. These plans allow you to contribute on a pretax basis so the IRS allows you a deduction for contributions to the plans. Only income that you earn from your self-employment activities can be used to fund these plans, so if you don't have self-employment income in excess of your self-employment expenses, you can't contribute.

Retirement Plan Warnings

Traditional and Roth IRAs share a common contribution limit, which applies cumulatively to both accounts. For example, in 2012 the maximum contribution is $5,000 ($6,000 if you're over 50) or your total earned income, whichever is smaller. So if you put $3,000 in a traditional IRA and you're 28, you can put only an extra $2,000 in a Roth IRA. SEPs and SIMPLEs have contribution limits based on the amount of your self-employment income. Also, beware that money contributed to a retirement plan must usually be left in the account until you turn 59 1/2 to avoid a 10 percent early withdrawal penalty on top of any income taxes due.

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