If you don't have a 401k, you can still invest in a retirement account. Two popular options are traditional IRAs and Roth IRAs. With a traditional IRA, you make contributions with pre-tax dollars and pay taxes on withdrawals in retirement. With a Roth IRA, you make contributions with after-tax dollars and withdrawals are tax-free in retirement.
There are income limits for Roth IRAs, so if you make too much money, you'll have to contribute to a traditional IRA. However, there are no income limits for traditional IRAs.
Both types of accounts have contribution limits: $6,000 for 2019 (or $7,000 if you're 50 or older). So if you want to save more than that, you'll need to open a taxable brokerage account (explained below).
Save in a taxable brokerage account
A taxable brokerage account is an investment account where you can buy and sell stocks, bonds, mutual funds, and other investments. The money you earn in the account is taxed at your marginal tax rate when you withdraw it.
The advantage of a taxable brokerage account is that there are no contribution limits. You can save as much money as you want. The downside is that you'll have to pay taxes on your earnings when you withdraw the money in retirement.
To minimize your taxes, invest in stocks or mutual funds that qualify for long-term capital gains treatment (held for more than one year). Long-term capital gains are taxed at lower rates than ordinary income. For example, if your marginal tax rate is 25%, long-term capital gains are taxed at 15%.
Use the bucket strategy
The bucket strategy is an investing technique where you put your money into three different buckets: cash, bonds, and stocks. The idea is to match your investments to your time horizon and risk tolerance."
"Cash" refers to safe investments like savings accounts and CDs that will give you easy access to your money when you need it."Bonds" refers to fixed-income investments like government bonds and corporate bonds."Stocks" refers to equity investments like stock shares in companies."
The bucket strategy can help you manage your risk because you're not putting all of your eggs in one basket. For example, if the stock market crashes, you'll still have money in your cash and bond buckets.
To use the bucket strategy, first, figure out how much money you need to have access to in the short-term (one year or less). This is your "cash" bucket. Next, figure out how much money you can afford to invest for the long-term (five years or more). This is your "stock" bucket. Finally, decide how much money you want to put in between these two extremes. This is your "bond" bucket.
Once you've determined how much to put in each bucket, choose investments that match each time horizon. For example, for your cash bucket, you might choose a savings account or a CD. For your bond bucket, you might choose government bonds or corporate bonds. And for your stock bucket, you might choose stocks or mutual funds.
There are income limits for Roth IRAs, so if you make too much money, you'll have to contribute to a traditional IRA. However, there are no income limits for traditional IRAs.
Both types of accounts have contribution limits: $6,000 for 2019 (or $7,000 if you're 50 or older). So if you want to save more than that, you'll need to open a taxable brokerage account (explained below).
Save in a taxable brokerage account
A taxable brokerage account is an investment account where you can buy and sell stocks, bonds, mutual funds, and other investments. The money you earn in the account is taxed at your marginal tax rate when you withdraw it.
The advantage of a taxable brokerage account is that there are no contribution limits. You can save as much money as you want. The downside is that you'll have to pay taxes on your earnings when you withdraw the money in retirement.
To minimize your taxes, invest in stocks or mutual funds that qualify for long-term capital gains treatment (held for more than one year). Long-term capital gains are taxed at lower rates than ordinary income. For example, if your marginal tax rate is 25%, long-term capital gains are taxed at 15%.
Use the bucket strategy
The bucket strategy is an investing technique where you put your money into three different buckets: cash, bonds, and stocks. The idea is to match your investments to your time horizon and risk tolerance."
"Cash" refers to safe investments like savings accounts and CDs that will give you easy access to your money when you need it."Bonds" refers to fixed-income investments like government bonds and corporate bonds."Stocks" refers to equity investments like stock shares in companies."
The bucket strategy can help you manage your risk because you're not putting all of your eggs in one basket. For example, if the stock market crashes, you'll still have money in your cash and bond buckets.
To use the bucket strategy, first, figure out how much money you need to have access to in the short-term (one year or less). This is your "cash" bucket. Next, figure out how much money you can afford to invest for the long-term (five years or more). This is your "stock" bucket. Finally, decide how much money you want to put in between these two extremes. This is your "bond" bucket.
Once you've determined how much to put in each bucket, choose investments that match each time horizon. For example, for your cash bucket, you might choose a savings account or a CD. For your bond bucket, you might choose government bonds or corporate bonds. And for your stock bucket, you might choose stocks or mutual funds.
