The good news is you can still enjoy tax-advantaged savings by opening an IRA account through the financial institution of your choice. An IRA actually gives you a wider range of investments to choose from than a 401(k).
However, an IRA doesn’t allow you to save as much as a 401(k), and you won’t have employer-matching contributions. That’s why it’s important to open your IRA and start saving as soon as possible. Be sure to contribute the maximum amount each year. Set up automatic monthly deposits from your checking account to your IRA, so you are not tempted to spend the money.
There are two types of IRAs:
Traditional IRA: Currently you can contribute up to $5,500 a year. You can deduct your contribution amount from your income taxes if your income is below certain levels. Your earnings will grow tax-free, but you’ll pay income tax on the money when you withdraw it. If you withdraw any money before age 59 ½ you’ll pay a 10% penalty.
Roth IRA: Currently you can contribute up to $5,500 a year. There is no upfront tax deduction with a Roth, but you can withdraw your money tax-free after age 59 ½ (provided you’ve had the account for at least five years). If you withdraw any money before 59 ½ you’ll pay a 10% penalty. There are income limits on opening a Roth IRA.