If your employer does not have a sponsored retirement plan or you work for yourself, open an Individual Retirement Account (IRA). You can open an IRA even if you have a 401(k). An IRA allows you to save even more annually.
As of 2021, you can contribute annually up to $6,000 if you are younger than 50 years of age or $7,000 if you are older. This divides into 12 $500 to $583 monthly contributions.
You will have more control over your IRA than a 401(k) and have a more extensive investment selection.
You can personally select the investments where your contribution goes or consult with a financial broker.
Several types of IRA let you start saving for retirement, but the two most popular are:
- Traditional IRA. You may be able to deduct your traditional IRA contributions for your taxes.
- Roth IRA. While there are no immediate tax benefits with a Roth IRA, you can withdraw your contributions anytime without penalty.
Some restrictions may take away your choice of IRA type. For instance, you may not be eligible for a Roth IRA if you make too much money. You also may be unable to deduct traditional IRA contributions from your taxes if you have a 401(k).
You will need to set up payment from your bank to the IRA. Your contributions can be periodic one-time payments, or you can set up automatic payments at weekly or monthly intervals. Although setting up automatic payments will ensure you are consistently saving for your future.