When it comes to saving for retirement, it’s hard to beat a 401 (k) diet. High contribution limits and employer matching can really increase your savings. And if you have a retirement savings goal like $ 1 million, that 401 (k) can get you there a lot faster.

Still, a third of U.S. private workers don’t have access to work-based plans, and even so, many employers don’t offer a match. But there’s the good news: it’s possible to retire a millionaire even if you don’t have a 401 (k) plan.

Individual retirement accounts (IRA)

a individual retirement account (IRA) is a tax-advantaged account that holds the investments you choose. There are two main types of IRAs – traditional and Roth – and the biggest difference between the two is when you pay your taxes.

Traditional ARIs

With Traditional ARIs, you get an initial tax break. You can deduct your contributions when you file your annual income tax return. The money in the account grows tax free. But when you withdraw money during retirement, it is taxed as regular income.

Roth IRA

A Roth IRA does not offer upfront tax relief. Corn qualified withdrawals—Those made after the age of 59 and a half from accounts established for at least five years — are tax-free. This can be a huge benefit, especially if you plan to be in a higher tax bracket in retirement.

IRA contribution limits

Whether you have a Traditional or Roth IRA, the annual contribution limits are the same. For the 2021 tax years, you can contribute up to $ 6,000, or $ 7,000 if you are 50 or over, a “catch-up” contribution for employees approaching retirement age.

Can You Save $ 1 Million In An IRA?

So, is it possible to save $ 1 million in an IRA? While the answer will depend on what investments you choose for the account, it is certainly doable, especially if you start early and save regularly.

For example, if you contributed $ 6,000 to your IRA each year starting at age 25, you would have saved about $ 1.2 million by age 65, assuming an annual rate of 7% return rate on your investment. However, if you wait until age 35 to start saving, you would have less than half of that amount – $ 567,000 – by the time you turn 65. This shows you how important it is to start early.

How can investors pay for their future?

Health savings accounts (HSA)

If you’re not sure if you can save $ 1 million in a single IRA, a Health savings account (HSA) can be a secret way to increase your retirement savings. Although HSAs are meant to pay for healthcare expenses, they can be a valuable source of income once you retire.

Your HSA contributions are tax deductible, so they lower your tax bill in the year you make them. And withdrawals are tax-free if you use the money to pay for health expenses, including dental and vision care.

HSA contribution limits

For the 2021 tax year, the maximum HSA contribution amounts are:

• $ 3,600 for individuals
• $ 7,200 for family coverage
• Additional “catch-up” contribution of $ 1,000 if you are 55 years of age or over

In 2022, the maximums will increase to $ 3,650 for individuals and $ 7,300 for families.

Unlike flexible savings accounts, HSAs have no disposition to use or lose. If you have money in the account at the end of the year, it stays there indefinitely. This means that if you make the maximum contribution each year, you could end up with a pretty penny in retirement, assuming you stay healthy.

How much can you save in an HSA?

Suppose you contributed the full $ 3,600 in 2021 and have $ 500 in medical bills each year. After 30 years, you would have over $ 220,000 to add to the retirement stack, assuming a 5% rate of return.

If you have family coverage, you can contribute $ 7,200 each year. If you maximize your contribution for 30 years, if you have $ 1,000 in medical expenses each year and have the same 5% rate of return, your account will grow to almost $ 450,000 after 30 years.

HSA withdrawals at retirement

You can still withdraw money from your HSA tax-free and without penalty for qualifying medical expenses.

In retirement, you can withdraw HSA money for things other than health care without incurring a tax penalty. Once you are 65, you can use HSA funds for any reason. You only pay ordinary income tax on distributions.

Taxable investment accounts

If you are maximizing an IRA and HSA, a taxable investment account (aka, a non-retirement account or brokerage account) is another option to consider.

These accounts do not offer any tax benefits like deductible contributions or tax-exempt growth. But you have a chance to earn better returns than putting your extra money in a regular savings account.

Of course, investments with higher potential returns also come with higher risks, so you need to think about your risk profile and the time horizon when deciding the level of risk to take.

You can invest as little or as much as you want in a taxable account and put your money in stocks, bonds, mutual funds, exchange traded funds (ETFs) and real estate investment fund (FPI), among other options.

Remember that the income from these investments is subject to capital gains taxes. Make sure you plan ahead for how this might affect your purchasing power in retirement.

The bottom line

A 401 (k) can be an extremely powerful tool in fueling your retirement savings efforts, but not having one doesn’t mean you have to retire penniless.

You can take advantage of other savings and investment plans to get the kind of retirement you want. Start saving as early as possible to increase your chances of reaching that $ 1 million retirement goal. And make sure you understand the rules for how much you can save and how your contributions will be taxed, so you don’t have any surprises during your golden years.