How to Save for Railroad Retirement without a 401K

Discover strategies for building your railroad retirement savings sans a 401k. Greetings, all, and welcome to another enlightening session of Highball Advisors Railroad Retirement whiteboard. I'm John McNamara, representing Highball Advisors, and today, our focus is on railroaders employed by companies not offering a 401k plan, particularly those on short lines or similar setups. While these railroaders may contribute to railroad retirement, the absence of a 401k benefit prompts us to explore alternative avenues.

Firstly, let's revisit the basics: a 401k typically serves as a tax-deferred savings instrument, permitting contributions of up to $23,000 annually for those under 50, with an additional $7,500 allowance for those over 50. Some 401ks even offer a Roth option for after-tax contributions, often accompanied by employer matching. Now, let's delve into alternatives for those without access to such plans.

One viable option is the Individual Retirement Account (IRA), available in traditional and Roth variants. The traditional IRA allows tax-deferred contributions of up to $7,500 annually, with an additional $1,000 for individuals over 50, while the Roth IRA enables after-tax contributions, with withdrawals being tax-free upon retirement. The choice between the two hinges on your marginal tax rate: opt for traditional if in a higher bracket, and Roth if in a lower bracket.

Alternatively, consider a brokerage account, where after-tax funds can be invested for retirement, albeit subject to capital gains tax upon withdrawal. Prioritizing IRA contributions before allocating surplus funds to a brokerage account is advisable.

Beyond these options, deferred annuities could be explored, although caution is advised due to high expenses, particularly for those with lengthy railroad careers. Rental properties offer another avenue for generating retirement income, albeit with attendant management responsibilities and investment considerations.

Additionally, initiating a small business or side hustle can provide supplemental income, with the added benefit of potential tax deductions and the ability to establish retirement accounts like a solo 401k or SEP IRA.

These alternatives aim to assist railroaders in crafting robust retirement plans despite the absence of 401k benefits. For personalized retirement planning assistance, consider our boarding for railroad retirement process. Until next time, stay safe, stay on track, and take care. Farewell, everyone.

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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. Highball Advisors encourages you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Highball Advisors, and all rights are reserved from Highball Advisors, and all rights are reserved.