Saving for retirement is a challenge for most people, but part-time workers face some unique obstacles that can make their savings goals feel like a pipe dream. With a smaller annual income and a lack of access to workplace retirement plans, even motivated savers may struggle to set aside as much as they'd like to each year.
But a sound strategy and a thorough understanding of all the tools available to you can help a lot. Here are three things part-time workers can try to boost their retirement savings in 2023 and beyond.
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1. Inquire about eligibility for your workplace retirement plan
Many part-time workers don't have access to workplace retirement plans, which limits how much they can save each year and bars them from receiving any sort of employer match the company may offer to full-time employees. But the SECURE Act and the more recent SECURE 2.0 Act should make this a little easier.
The SECURE Act, passed in 2019, required employers to permit employees to participate in their 401(k) plan as long as they've completed at least one year of service in which they worked at least 1,000 hours, or three consecutive years of service in which they worked at least 500 hours each. And the new SECURE 2.0 Act, passed in 2022, drops the second requirement from three years of service to two beginning in 2025. Pre-2021 service doesn't count.
Part-time employees who believe they may be eligible to enroll in their workplace retirement plan should reach out to their employer about doing so. This is a great place to save each year, especially if you qualify for an employer match. By putting your funds here until you've gotten the full match, you're significantly increasing the amount you're able to save each year.
2. Use your IRA and HSA
An IRA is most people's go-to retirement account if they don't have access to a workplace retirement plan. Contribution limits are lower than 401(k)s -- you can save just $6,500 in an IRA in 2023 compared to $22,500 with a 401(k) -- but many people will find this sufficient. IRAs also give you the freedom to choose what you want to invest in and when you want to pay taxes on your funds.
Health savings accounts (HSAs) are another option to consider if you have a qualifying health insurance plan. That's one with a deductible of $1,500 or more for individuals or $3,000 or more for families. Contributions to these accounts reduce your taxable income for the year, just like traditional IRA contributions. But you also get tax-free medical withdrawals at any age. This is a nice perk for those who are worried about locking up their money in a retirement account for years.
As long as you have a qualifying insurance plan, you can open an HSA with any provider and set aside up to $3,850 if you have an individual plan or $7,750 if you have a family plan. Just make sure to choose a provider that enables you to invest your HSA funds. Otherwise, your savings won't grow very quickly.
3. Use a spousal IRA if you're married
Spousal IRAs are regular IRAs that your spouse contributes to on your behalf. They can set aside up to the annual contribution limit as long as they've earned at least enough throughout the year to cover all the contributions to the spousal IRA and their own retirement accounts.
This can be a great way to boost household savings if the part-time worker isn't able to set aside any money for retirement on their own. But note that once the money is in a spousal IRA, it belongs to the person whose name is on the account, even if the couple were to later divorce.
The strategies above can help you improve your retirement readiness significantly if you're able to set aside some extra cash each month. For those who depend on all their monthly income, things are trickier. In that case, you may have to consider increasing your hours or delaying retirement in order to give yourself the time you need to save. But keep the above tips in mind so you know where you want to put your savings when you're ready.
