Table of Contents
Key Takeaways
- 401(k)s allow you to make pre-tax contributions that can be matched by your employer. This is a great way to save for retirement if your employer offers it.
- IRAs allow you to make annual contributions up to $7,000 in 2024. You have options like traditional and Roth IRAs.
- Taxable investment accounts don't have the tax benefits of 401(k)s or IRAs, but offer more flexibility as you can access the money at any time.
- Savings accounts offer FDIC insurance and easy access to your money, but lower returns compared to investing.
- Consider starting small and gradually increasing contributions over time. Seek help from a financial representative to develop the right plan for your goals.
Whether you're preparing for your retirement or saving for something specific, like a down payment on a home, reaching your long-term financial goals can seem daunting. The good news is you don't always need a lot of cash to get started.
Even small contributions today have the potential to grow over the long term. So, if your budget is a bit tight, don't worry. Here are some ways you could start investing with little money.
1. 401(k)s
Many adults have a 401(k) or other employer-sponsored retirement plan to which they can make voluntary contributions. If you're fortunate enough to be in that group, these accounts can be a great place to start.
Workplace retirement plans offer several important benefits, like the ability to make tax-deferred contributions. Plus, some employers match what you put into a 401(k), up to a certain percentage of your salary. So even if you only allocate 1% of your earnings from each paycheck to the plan, the total contribution may be double that amount if your employer offers a match.
2. IRAs
If your employer doesn't offer a retirement plan — or one that suits your financial goals — you can still receive many of the same benefits through an individual retirement account (IRA) of your choosing. Rather than investing through your place of work, you open these accounts directly with a financial services company that offers them. As of 2024, the IRS allows individuals to invest up to $7,000 a year.1
You also have the option to open a Roth IRA, which has many of the same benefits and caveats as a Roth 401(k). You pay taxes on your contributions up front. These contributions aren't tax-deductible, but you may not owe any taxes on your gains in retirement as long as you meet certain requirements.2 Some IRA providers require a minimum contribution to open an account, and some don't. If you're wondering how to invest a small amount of money, doing a little research on IRA providers might be worth your while.
3. Taxable Accounts
Both 401(k) plans and IRAs offer tax features that are hard to ignore. But there may be certain circumstances when those accounts don't match your needs — for example, when you'll need access to that money before you hit retirement.
In those cases, a taxable brokerage or mutual fund account might offer a good alternative. Some companies require only a small initial purchase to get started, and a few waive minimums altogether. When opening a brokerage account, there may be transaction fees, which can cost a few dollars per trade.
Some funds have higher fees than others, so you may want to do your research to see what your options are.
4. Savings Accounts
If you think you'll need access to your money within a couple years, Federal Deposit Insurance Corporation (FDIC)-insured bank accounts may offer a level of security that investment accounts don't.
You may not get the same potential returns as stocks or even bonds, but looking at the different interest rates that various traditional and online banks offer may help you find one that's appealing. Consider looking for accounts that have no minimum balance requirements so you won't trigger monthly fees.
As with other investment and savings options, just because you start investing with little money doesn't mean you have to stay on that course. Once you get used to contributing a certain amount each month to your account, consider gradually raising the dollar amount to help reach your goals faster if more money becomes available to you. The best investment path for you will always depend on your broader financial goals, so consider speaking with a financial representative to help make a plan that suits you.
Sources
- 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000.
- Publication 590-B (2022), Distributions from Individual Retirement Arrangements (IRAs). https://www.irs.gov/publications/p590b#en_US_2018_publink1000231061.
