Your workplace 401(k) plan is typically the most convenient way to begin saving for retirement. But if you don’t have access to a 401(k) plan or it isn’t meeting all of your investment needs, you may want to diversify your savings. The good news is there are quite a few ways to save money for retirement without completely relying on a 401(k) plan. Consider these alternative ways to save for retirement:
[See: How to Save for Retirement on Less Than $40,000 Per Year.]
1. Traditional IRA. A 401(k) isn’t the only type of retirement savings account. A traditional individual retirement account also allows you to save pre-tax dollars, and you don’t pay taxes on your contributions until you withdraw the money from the account. A traditional IRA grows quickly because all the dividends, interest payments and capital gains in the account compound annually without being taxed. IRAs generally have more investment options than 401(k) plans, so you get more control over how you invest. However, IRAs have lower contribution limits than 401(k) plans and don’t provide an employer match.
2. Roth IRA. A Roth IRA is an after-tax retirement savings account. Since you contribute money that has already been taxed, the money you deposit grows tax-free. You also generally don’t have to pay income tax on withdrawals in retirement. This differs from a traditional IRA in that you pay taxes now, instead of when you withdraw the money later in life. A Roth IRA offers a bit more flexibility than a traditional IRA, since it allows you to withdraw the money you contributed penalty-free before retirement. Roth IRAs also don’t have any age restrictions on contributions from older workers, and don’t require you to withdraw the money after a certain age like a traditional IRA.
[See: How to Max Out Your 401(k) in 2018.]
3. Robo advisors. Robo advisors are online services that help you manage your investments. These platforms use algorithms to create a diversified portfolio and make ongoing decisions about how to invest. Investors share their financial goals and risk tolerance and a computer program suggests an appropriate investment allocation. The account is maintained without the biases and costs of a financial advisor making day-to-day investment decisions. However, it’s a good idea to double check that the algorithm suits your preferences and that you agree with the investment decisions.
4. Micro-investment apps. Another way to use technology to save money is micro-investment apps. Micro-investment apps allow you to round up the amount of your purchases to the nearest dollar and tuck what would otherwise be spare change into an investment account. You can often start investing with as little as $5, and you don’t have to go through an investment broker or financial advisor, because it’s all managed right from your smartphone. Micro-investment apps generally offer exchange-traded funds, which are bundles of stocks, bonds or other investments, usually clustered together by risk level or similar industry. Make sure the investments offered suit your risk tolerance and overall investment strategy before signing up.
[See: 10 Tips for Rolling Over a 401(k) When You Change Jobs.]
5. Earn some extra cash. If a small salary is preventing you from saving for retirement, it might be time to find some quick ways to make extra money. For example, some credit cards offer cash back for a certain percentage of purchases, which can help you earn easy money as long as you’re a responsible credit card user. You may also be able to earn money using free cash back apps at the grocery store or cash back portals for online shopping. These methods won’t net you tons of cash, but they’re easy ways to earn while going about your everyday life.
Those who have some extra time can also earn money by freelancing on the side, often from the comfort of home. You can find freelance job opportunities on specialty sites and the same online job boards you would go to for a traditional 9-to-5 job, especially if you have an easily marketable skill such as writing, editing, data entry or transcription. Another way to make money from home is to sign up for online survey panels to get paid for voicing your opinion. Companies want your opinions and will pay you to provide them through survey sites. If you funnel some of that money into a retirement account, it can help you jump-start your retirement savings.
If you already have a 401(k) through your employer, that’s the easiest way to begin building wealth for retirement. But after you get the 401(k) match, don’t be afraid to branch out and start saving outside of your workplace retirement plan.
Jacquelyn Pica is a junior writer at The Penny Hoarder.
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5 Ways to Save for Retirement Outside a 401(k) originally appeared on usnews.com
