Thank you to the thousands of our Women Talk Money community members who recently joined us for a Q&A session on different ways to save for retirement, including IRAs, HSAs, and workplace plans like 401(k)s. Here are answers from our Fidelity pros to the top 5 questions asked, plus resources to help you achieve your retirement goals.
1. I have a 401(k), Roth IRA, and an HSA. I’m already contributing the suggested 15%, but I want to contribute more—how do I choose where to put my extra contributions? — Yolanda
As women, we’re likely to need more money than our male counterparts in retirement. Fidelity’s 15% guideline is based on research findings that most people need between 55%–80% of their preretirement income to finance their lifestyle in retirement. Of course, that number is unique to everyone and depends on your financial situation.
If you’re already reaching that 15%—congratulations! That’s a huge accomplishment. Working with a financial professional can help you decide where putting any extra contributions may make sense for you. If you’re not currently reaching that 15%, that’s OK too! Here are some general suggestions and next steps you could potentially take to help max out your retirement savings.
- Contribute to your workplace retirement account up to the full employer match
If your workplace offers an employer plan, find out if your employer has a “match,” which means they’ll match your contributions up to a certain amount each year. Which is kind of like free money on the table! Also, find out how long you need to work there to keep the money they give you (often called “vesting”)—but once that money vests, it’s yours to keep.
- Max out your HSA
Health care may be one of the highest expenses during retirement. If enrolled in an eligible high-deductible health plan, consider contributing to—and maxing out (if you can)—an HSA. HSAs are “triple” tax-advantaged,1 which means: 1) your eligible contributions reduce your taxable income; 2) your contributions are not taxed while they are in the account—even if they earn interest or investment returns; 3) you won’t owe taxes when you take money out—as long as the money is used for qualified medical expenses.2 The 2024 contribution limits for an HSA are as follows:
1. Self-only coverage: $4,150
2. Family coverage: $8,300
3. Additional “catch-up” contributions for 55+: $1,000
There are also other benefits to HSAs aside from covering health care expenses—see question 5 below for more.
- Max out your workplace savings plan
Because of the gender pay gap, women are often earning less—so basing contributions on a percentage of earnings means contributions could be lower. That's one reason why it might make sense to aim for the maximum allowed. Similarly to other retirement savings accounts, workplace plans, like 401(k)s or 403(b)s, have contribution limits too. The 2024 contribution limits are as follows:
1. Employee-only contributions: $23,000
2. Employee + employer contributions: $69,000
3. Additional “catch-up” contributions for 50+: $7,500
- Max out an IRA (a Roth IRA, traditional IRA, and/or rollover IRA)
Another option to consider is an IRA, or individual retirement account. There are several IRA options with different benefits and requirements. You can contribute to one or even all of them as long as your combined contributions don’t go beyond either your earned income or what the IRS allows. If you’re not sure which IRA is right for you, consider consulting a financial professional and checking out this comparison chart. The 2024 contribution limits for an IRA are as follows:
1. General: $7,000
2. Additional “catch-up” contributions for 50+: $1,000
- Consider investing in brokerage accounts
If you’ve maximized your contributions to tax-advantaged accounts, you can keep saving and investing in regular brokerage accounts. The tax advantages won’t be the same, but you still have the potential for long-term growth, not to mention flexible access to your money if you need it and there’s no contribution limit.
Tip: Get your Fidelity Retirement ScoreSM. Answer 6 simple questions and see where you stand for retirement.
Read more: How much do I need to retire?
2. I'm 44 years old and behind on my retirement savings. What’s the difference between a 401(k) and a Roth 401(k)? Which would get me on track faster and help me save as much as possible? — Eva
First off, it’s never too late to start saving for retirement. Being in your 40s or 50s means you may have upwards of 20+ years to help your money work harder for you. And while there's not magic amount to save, or age you should be to retire, there are several factors that can impact your decisions, like your current financial situation and the lifestyle you hope to have in the years to come. There are also “catch-up” opportunities available for those over 50. The key is to take action.
Deciding between a 401(k) and a Roth 401(k) depends on your financial priorities now versus in the future. A Roth 401(k) is kind of like a hybrid between a Roth IRA and a 401(k). Similar to a Roth IRA, an employee makes post-tax contributions (so you pay the taxes now instead of in retirement), and any earnings grow potentially tax-free.3 But the contributions are made through regular payroll deductions and have the same limits as a tax-deferred 401(k), which are considerably higher than the limits for a Roth IRA. There’s no right or wrong answer, and both options can help you reach your retirement goals. Whichever you choose depends on your unique financial situation and your tax preferences.
Tip: Consider working with a financial professional to discuss and help you understand your options.
Read more: Explore the pros and cons of a Roth 401(k) and see if it may be right for you.
3. What if you don’t work or are self-employed? What options do you have to save for retirement? — Amanda
There are many ways to save for retirement if you are unemployed, self-employed, a stay-at-home parent, or if your employer just doesn’t offer a workplace plan. Here are a few options to consider—note this is not a full list. Consult a financial professional to learn and understand all your options before making a decision.
- Spousal IRA
A non-wage earning spouse can open and contribute to an IRA if the other spouse is working and the couple files a joint federal income tax return. A spousal IRA can be a traditional IRA or Roth IRA and a nonworking spouse can contribute as much as the wage earner does (or up to contribution limits). However, the amount of your combined contributions cannot exceed the taxable compensation reported on your joint return.
- Self-employed 401(k)
A self-employed 401(k) —sometimes called a solo 401(k)—often provides the highest savings potential for self-employed individuals as, in many ways, it works the same way as a standard 401(k). This type of account is available for small-business owners who don’t have any employees (apart from a spouse) and could make a good option for sole proprietors, independent consultants or contractors, partnerships, or owner-only corporations looking for a retirement plan similar to one they might get from working at a larger company.
- Simplified Employee Pension Plan (SEP IRA)
If you are self-employed or have income from freelancing or a side hustle, you can open a SEP IRA even if you have a full-time job elsewhere. The SEP IRA is similar to a traditional IRA but contributions may be tax-deductible to the small business, not necessarily the individual—the SEP IRA has a much higher contribution limit, though. SEP IRAs can help self-employed individuals or small-business owners save up to the contribution limit of $69,000 in tax year 2024 for retirement in a tax-advantaged way. As with many small business retirement plans, there are also nuances and potential drawbacks of SEP IRAs that you'd want to consider as you weigh your options.
- SIMPLE IRA
Savings Incentive Match Plan for Employees—or SIMPLE IRA —is a plan for businesses with 100 or fewer employees that might not have the resources to handle the administrative duties involved with larger retirement plans. Contribution limits are much lower than those of a self-employed 401(k) or SEP IRA but all contributions (employee + employer) are immediately vested to the employee. Like personal IRAs, SIMPLE IRAs are designed to discourage account holders from taking money out before retirement.
- HSA
If you’re enrolled in an HSA-eligible high-deductible health plan, another long-term savings option to consider when you’re self-employed is a health savings account (HSA). You can save 15.3% in FICA taxes on contributions since you're paying as both employer and employee.4 HSAs are triple tax-advantaged,1 and contributions are investable. Once you’re 65, you can also choose to use your HSA funds for expenses other than health care. In this case, your HSA has the potential to act similarly to a traditional IRA, where you pay taxes on withdrawals, but for an HSA, this only applies to expenses outside of qualified medical expenses.
4. What is a backdoor Roth IRA? When would someone need this type of account? — Kristina
A backdoor Roth IRA is not a different kind of IRA—it’s a “backdoor” way of moving money into a Roth IRA, which is accomplished by making non-tax deductible contributions to a traditional IRA and then converting those funds into a Roth IRA. This strategy could benefit high-income earners that may not be able to fully deduct IRA contributions or may not be able to contribute directly to a Roth IRA due to income limits. Once your money is in the Roth IRA account, it can grow tax-free, and qualified withdrawals on the converted amount in retirement are also tax-free.5 Another potential benefit of a Roth IRA is that, unlike with traditional IRAs, you don’t have to take required minimum distributions (RMDs) from the account.
Tip: Check out our Roth conversion checklist to make sure converting makes sense for you and see how to do it.
Read more: Backdoor Roth IRA: Is it right for you?
5. Should you be contributing to an HSA if you don't have any consistent health-related expenses? If so, how should you invest your HSA to help it grow? — Rachel
HSAs offer a number of benefits beyond spending for short-term qualified medical expenses, including saving for longer-term qualified medical expenses in retirement or playing a role in your estate plan or even acting as part of your overall retirement savings plan. As we mentioned earlier in this article, HSAs are triple tax-advantaged.1 They are also investable, meaning you can invest annual contributions to potentially help your savings grow even more and HSAs are not subject to the “use-it-or-lose-it” rule like health flexible spending accounts (FSAs). Your money can accumulate year after year, even if you change jobs or retire. However, you need to be enrolled in a HSA-eligible, high-deductible health plan (HDHP) to continue contributing.
As for investing your HSA, consider working with a financial professional to weigh your options. A financial professional can help you choose investments or you can have it professionally managed for you. It depends on things like your preference, risk tolerance, and current financial situation.
Let’s use an example to help you visualize the power of investing and the tax benefits in an HSA.
In this hypothetical example, a customer invests $1,000 in their HSA. Over the next 30 years, that single investment of $1,000 grows at 7% a year to $7,612 (keep in mind, a consistent growth rate like this is purely hypothetical). If that HSA account holder invested the same $1,000 in a tax-deferred account like a traditional IRA, their total investment return would also be $7,612.
However, when withdrawing from the tax-deferred account, like a traditional IRA, the account holder would pay income tax, let's say for this example, at an effective rate of 22% upon distribution.6 And of the $7,612, only $5,937 would remain. The account holder would receive the full $7,612 if the funds were invested in an HSA and were used for qualified medical expenses, but if the account holder wanted to use the funds in the HSA account for something other than qualified medical expenses after age 65, the same 22% income tax would apply.7
Tip: Learn more about the Fidelity HSA , ranked the #1 HSA provider among 10 of the largest HSA providers for the past 5 years in a row.8
Read more: 5 ways HSAs can help with your retirement