Key Takeaways
- About 50% of Americans don’t have access to a 401(k).
- There are other ways besides a 401(k) to save for retirement and still receive tax benefits.
- If you choose to put your money into a cash value life insurance policy, you’ll now be able to put almost double away, due to a new rule.
Being left out isn’t a great feeling, whether that’s not being picked for a team as a kid, or not having access to a 401(k) as an adult. If you’re one of the 50% of Americans who don’t have a 401(k) available to them, you may be feeling like you’ve been left on the sidelines. Well, this is for you.
Entrepreneur.com Magazine came out with an article called Four Ways to Save for Retirement Without a 401(k). We’ll review three ways here.
First, there’s IRA and Roth IRA. Both have contribution limits of $6,000 per year ($7,000 per year if you’re over age 50). The IRA can be deductible if you meet certain rules. A Roth IRA isn’t deductible, but is tax deferred and tax free. Both of these options are great because they both give you two tax benefits, though there are those contribution limits.
Second is a solo 401(k)/profit sharing plan. If you’re doing side gigs or freelance work, you can qualify for this. They’re pretty easy to put together and you can contribute up to the maximum that 401(k) allows, and then some.
A third option is cash value life insurance. These are a bit like a Roth IRA in that they’re tax deferred and can be tax free, depending on how you take money out in the future. This is important because there was a change in law in December 2020 (Section 7702 rule change) – instead of assuming a 4% rate for insurance, the rate is around 2% now.
The result of this is that you can put almost double away into a cash rate life insurance policy, before it becomes an investment contract. More money now goes away for you, rather than paying for insurance. And of course, if you need life insurance, that’s part of what you’re paying for. This is a long-term benefit and can work really well. When you look at markets going up and down, there is some solace to be had in having a more consistent return over time. These insurance policies can be very good long-term savings vehicles.
Hopefully, knowing that these other options are out there will help alleviate that left out feeling! So research these options and find yourself a good financial coach who can help you out. Until next time, enjoy.
If you’d like to read more on this topic, here are a few of Gary’s previous posts that you might enjoy:
