where do i invest for retirement-if not 401K or IRA?

[hopefulfirefly]

I am employed at a family owned business. My 401K retirement is capped at 5% (based upon the contributions of other employees, the owners and owner's family is capped at 401K contributions). I am contributing the max to my Roth IRA. What is the next best option for retirement savings? Btw-I'm 25, so, retirement is a ways away. Thank you!

[creditcardfree]

Congrats on maxing those both out!

Almost all other options will be in non tax sheltered accounts. The only tax sheltered option I can think of is an annuity. These have high fees, but really might make the best sense in your situation. The annuity would be variable and invested in a mutual fund...then you have the ability to withdraw at retirement.

You might make sure you have an emergency fund in place before adding more to retirement. Do you need to save for a home or other large purchase first before increasing retirement savings?

[noppenbd]

Since capital gains rates are low, investing in an after-tax brokerage account is not a bad idea. That gives you triple tax diversity (Roths are tax free if ordinary tax rates go up, 401ks are tax deferred if ordinary tax rates go down, and after-tax if capital gains rates stay lower than ordinary income tax rates).

[ea1776]

IMO, saving for, and paying off a home for yourself is the next retirement step (assuming a 6 month EF is in place).

If you plan on having children, another idea is saving for their college in a tax-sheltered account. You could assign yourself as the beneficiary, then change that after their birth.

The more you save now, the less money you will actually spend saving for their school in the long run, and again your gains would be tax sheltered in a 529 for example.

[jIM_Ohio]

You want to set aside 15% of gross pay for retirement each year. 5% into 401k, plus 5k into a Roth... how much is the gap to 15%?

I would invest in a taxable brokerage account and choose growth or dividend oriented investments. Keep bonds and interest bearing investments in 401k or Roth. Keep aggressive growth investments in the Roth.

[zetta]

If you could become an independent contractor to the family business rather than an employee, you could put up to 25% of your earnings in a SEP-IRA. However, if you are getting health benefits it probably makes more sense to remain an employee.

I would second Jim_Ohio -- invest in mutual funds in a taxable account, and just mentally peg it for retirement.

[simpletron]

why dont you try to encourage other employees to contribute more?

fight for a company match like 25% match up to 10% or 50% match up to 6%. probably the best way to encourage participation. even through it does cost the company money, it generally reduces turn over.

another thing to try is make the 401k an opt out instead of an opt in. automatic sign all new employess with a low starting contribution percentage like 2-4% with 1% annual increase when raise are given out. people need a reason to change things, so most people won't do anything. it helps them start saving and they never miss the money because they never had it. most company that do this, sign employees up for a target date retirement fund.

these two things will help non-highly compensated employees participation rates and amounts which helps you be able to contribute more.

[hopefulfirefly]

Do you need to save for a home or other large purchase first before increasing retirement savings?

We already own a home, 130K mortgage on a home valued at 175K. I'm recently married, and dh and I are planning on adopting in the next year or two. We have about 5K in an EF, 22K in the "adoption fund", and a few other thousand in mutual funds. We are working diligently to build up our EF, because it's obviously not sufficient now. But, I don't want to neglect retirement savings while we are working on building up EF.

You want to set aside 15% of gross pay for retirement each year. 5% into 401k ($2750), plus 5k into a Roth... how much is the gap to 15%?

I thought 15% was a minimum? Should I not aim to invest more than that into retirement? I make 55K.

Thanks for all the suggestions!

[jIM_Ohio]

Originally Posted by hopefulfirefly

I thought 15% was a minimum? Should I not aim to invest more than that into retirement? I make 55K.

Thanks for all the suggestions!

More (bigger) is better. But 15% into retirement suggests that when the time is right, you will have enough to retire on your terms.

15% suggests the following- every 6 years you will be setting aside one years pay.

If invested properly, a savvy investor could make money double every 6-9 years.

The 15% is a guideline I see at T Rowe Price for retirement planning. It includes the match. It is higher than the 10% I have recomended as recent as 12-24 months ago and higher than the 10% guideline I read about "paying yourself first" 20 years ago. I think the higher guideline deals with the lack of social security or health care stability, and also to give the option of retiring earlier than typical SS age.