401k Alternatives: There are 10 Options

The most popular workplace retirement plan is the 401(k). Nearly 80% Americans have one. This gives millions of Americans the opportunity to start saving for retirement.

Unfortunately, not everyone has access to a plan under 401(k). This could be because their employer does not offer one or because they are part-time workers who do not meet the employer's requirements.

Although the majority of employees work for companies offering 401(k), only half of them actively contribute.

It is obvious that many people don't have access or aren't using their 401(k), which raises the obvious question: How can they save for retirement? There are other options employees have to consider for investing in retirement. Many of these vehicles can be tax-advantaged, just like a 401k.

What is a 401k Plan?

Before we get into the options for a 401k, let's first discuss how 401k plans work. This will help you understand the differences between these accounts and how you can decide which one is best for you.

Many for-profit businesses offer a 401(k), which is a workplace retirement plan. This account allows workers to contribute up to $20,000. An additional catch-up contribution can be made by workers 50 years and older, which is $6,500. Employers may also contribute to workers' accounts for a combined contribution limit of $61,000.

Most 401(k), or pre-tax, plans offer tax-deferred benefits. This means that contributions are made before taxes. You'll be subject to income taxes on the distributions you make during retirement. The money grows in the account tax-deferred. These accounts are meant for retirement savings. You must keep the money in your plan until you turn 59 1/2. Otherwise, you could be subject to a 10% penalty and additional income taxes.

10 401(k), Alternatives

Although 401(k), plans are the most popular retirement savings vehicle, there are other options. Although each vehicle offers different benefits and perks, they can all be a great way to build wealth for retirement.

1. Roth 401(k).

Although technically a Roth 401 (k) plan is a type of traditional 401 (k), many people are unaware they have it. The Roth 401 (k) is almost identical to a traditional plan, but it has a tax advantage.

A Roth 401k(k) is different from a traditional 401k, which has pre-tax deductions. It has after-tax deductions. They won't lower your taxable income for the current year. You won't have to pay tax on the money once it is in your account. You'll receive tax-free distributions in retirement and your investments will grow tax-free.

2. Traditional IRA

An individual retirement account (IRA), is a type you open through a brokerage firm and not through your employer. The IRS allows workers up to $6,000 per annum to a traditional IRA. There is also a $1,000 catch-up contribution.

To contribute to a traditional IRA you must have earned income. The amount you can contribute cannot exceed 100% of your earned income. If you earn less than $4,000 per year, your contribution limit is $4,000 and not $6,000

A traditional IRA has the same tax advantages as a traditional 401 (k). Tax-deferred investments and tax-deferred contributions will be available to you. You'll then have to pay income taxes on the distributions. You'll also be subject to a 10% penalty for withdrawing the money before your turn of 59 1/2.

It is important to remember that not all contributions (or even a portion thereof) are tax-deductible depending on your income or access to a plan sponsored by an employer.

3. Roth IRA

Roth IRAs are another type of individual retirement account. In terms of withdrawal age and contribution limits, it is identical to the traditional IRA. The tax benefits of a Roth401(k) are however identical. After-tax contributions are made and the money won't be subject to tax again.

Roth IRAs have an advantage that allows you to withdraw more money earlier if you wish. You can withdraw your Roth IRA funds at any time after you have opened it for at least five year. This is because you already paid taxes on the contributions. This exception applies only to your contributions and not to your investment earnings.

The income limit for Roth IRA eligibility is also subject to change. If you aren't within those limits, you will not be able contribute to the plan directly.

4. Plan 403(b).

The 403(b), also known as a taxsheltered annuity, or TSA, is a retirement plan that is offered at work by non-profits and public schools. These plans offer many of the same features as a 401k plan, such as their withdrawal rules and contribution limits.

The key difference between 401 (k) and 403 (b) plans is that you may be eligible to contribute more money. Employers with 15 years service can contribute less to one of these plans:

  • $3,000
  • $15,000 reduced by elective deferrals from prior years
  • Five thousand times the number years of service, less the total elective deferrals in earlier years

5. 457(b), Plan

A 457(b), or deferred compensation plan, is offered to many state and municipal employees as well as non-profit organisations. This plan offers the same contribution limits and benefits as 401(k). They may also allow Roth and traditional contributions.

The key difference between 401 (k) and 457 (b) plans is the fact that 457 (4b) plans are not qualified and are not governed by ERISA. Distributions made before the age of 59 1/2 don't attract a 10% penalty for early withdrawals unless they have been rolled over money from another retirement plan.


SEP IRA stands for simplified employee pension plan. This retirement plan is designed for self-employed people. SEP IRAs can be set up by any size business, but are especially popular among small businesses.

A SEP IRA allows a business to contribute up to 25% or $61,000 depending on the employee's salary. Employees cannot contribute to the account, unlike 401(k), but only the employer can. The employer must also contribute equally to all eligible employees. This is not a dollar amount but a percentage of the employee's salary.

These plans are popular with solopreneurs, who can contribute large amounts to their own requirements and don't need to save for employees due to the high contribution limit.

SEP IRAs cannot be used to make pre-tax contributions, unlike other retirement plans. A Roth SEP IRA cannot be opened. These plans have the same withdrawal restrictions as other retirement plans.

7. Solo 401(k)

Solo 401(k), also known as a one-participant plan 401(k), is another type retirement plan for self-employed people. This plan is only for the business owner or their spouse. Employers cannot contribute on behalf employees.

Solo 401(k) allows self-employed individuals to contribute up to 100% of their annual compensation, subject to the annual contribution limit at $20,500. In addition to the contributions that employees make, self-employed workers can also contribute to their account for their business. Employer contributions may be as high as 25% of the compensation, but the calculation for self-employed people is more precise. To determine the maximum allowable amount, it is a good idea to consult a tax advisor.

Solo 401(k), like other retirement plans, can accept traditional or Roth contributions. Participants can then choose which tax benefit they prefer. These plans have the same withdrawal limitations as other retirement plans.

8. Health Savings Account

The HSA (health savings account) is a unique option on this list as it's not designed to help you save for retirement. It's instead designed to help pay for healthcare expenses.

If workers have a high-deductible plan that covers health insurance, they can contribute to an HSA. This means that the deductible must be at least $1,400 per person and $2,800 per family. An individual can contribute $3,650 annually, while a family can contribute $7,300.

HSAs have a triple tax advantage. Your contributions, just like traditional 401(k), are exempt from tax. You can also invest your HSA money, which grows tax-free so long as it remains in the account. You won't have to pay taxes on any withdrawals if you use the money for qualified medical expenses. You'll also pay 20% penalty if you withdraw the money to pay income taxes.

A unique retirement savings feature is also available in HSAs. You can access your account money for any purpose, including non-medical ones, once you turn 65. There is no penalty on your distributions. You will still have to pay income taxes, just like a 401 (k) plan.

9. Account for Taxable Brokerage

A taxable brokerage account allows anyone to invest in their financial goals regardless of their employment status, income or employer.

There are clear benefits to taxable brokerage accounts. You can put as much money as you like without limiting your contribution. You can withdraw your money at any moment and use it for any purpose without worrying about penalties.

Taxes are another major disadvantage of taxable brokerage accounts. This type of account has no tax benefits. After-tax money is used to invest and taxes are paid on the investment growth. Two types of taxes can be applied to assets in your taxable brokerage account.

  • Normal income taxes: These taxes will be paid on short-term capital gains and ordinary dividends as well as interest income. The tax rate will be the same as your normal income tax rate.
  • Long-term Capital gains taxes : These taxes will be paid on qualified dividends and long-term capital gains. Your income will determine which tax rate you pay.

10. Real Estate

Real estate is not an investment account, unlike the other 401(k), alternatives we have on our list. It's an asset that you can invest in. It is not designed to be used for retirement savings but many people do use it for that purpose.

Two ways can real estate investors make money are possible. They can sell property that has appreciated over time to make money. They could also rent out their real estate.

Renting out properties can provide regular cash flow. Rent that tenants pay each month can provide a steady source of income during retirement.

There are some downsides to owning property. Instead of having your money available and liquid in an investment account it is highly illiquid when you own a piece real estate. It may provide a monthly income source, but you also have a substantial amount of money invested in a tangible asset.

Next steps for you

You have many options for saving for retirement, regardless of whether you have a 401k plan. With the right tools, you can jumpstart your retirement plans. The Personal Capital Retirement Planner will help you achieve your retirement goals. It estimates whether you are on track for retirement and how much money you should be saving each month to retire on schedule.

Get started with the Personal Capital's free financial tools

Frequently Asked Questions

Should You Purchase Gold?

Gold was a safe investment option for those who were in financial turmoil. Today, many people are looking to precious metals like gold and avoiding traditional investments like bonds and stocks.

Gold prices have been on an upward trend over recent years, but they remain relatively low compared to other commodities such as oil and silver.

This could be changing, according to some experts. According to them, gold prices could soar if there is another financial crisis.

They also note that gold is increasingly popular because of its perceived intrinsic value and potential return.

These are some things you should consider when considering gold investing.

  • Before you start saving money for retirement, think about whether you really need it. It is possible to save for retirement while still investing your gold savings. Gold does offer an extra layer of protection for those who reach retirement age.
  • Second, be sure to understand your obligations before you purchase gold. Each one offers different levels security and flexibility.
  • Finally, remember that gold doesn't offer the same level of safety as a bank account. Losing your gold coins could result in you never being able to retrieve them.

Do your research before you buy gold. Make sure to protect any gold you already own.

What does gold do as an investment?

Gold's price fluctuates depending on the supply and demand. Interest rates are also a factor.

Due to limited supplies, gold prices are subject to volatility. Additionally, physical gold can be volatile because it must be stored somewhere.

What is the best way to hold physical gold?

Not just paper money or coins, gold is money. It's an asset that people have used for thousands of years as a store of value, a way to keep wealth safe from inflation and economic uncertainty. Investors use gold today as part of their diversified portfolio, because it tends to perform better in times of financial turmoil.

Many Americans now invest in precious metals. It is possible to make money by investing in gold. However, it doesn't guarantee that you'll make a lot of money.

Another reason is that gold has historically outperformed other assets in financial panic periods. Gold prices rose nearly 100 percent between August 2011 and early 2013, while the S&P 500 fell 21 percent over the same period. During these turbulent market times, gold was among few assets that outperformed the stocks.

Gold is one of the few assets that has virtually no counterparty risks. You still have your shares even if your stock portfolio falls. You can still own your gold even if the company where you invested fails to pay its debt.

Finally, gold offers liquidity. This means you can easily sell your gold any time, unlike other investments. It makes sense to buy small quantities of gold, as it is more liquid than other investments. This allows for you to benefit from the short-term fluctuations of the gold market.

How is gold taxed in Roth IRA?

The tax on an investment account is based on its current value, not what you originally paid. So if you invest $1,000 in a mutual fund or stock and then sell it later, any gains are subject to taxes.

You don't pay tax if you have the money in a traditional IRA/401k. Capital gains and dividends earn you no tax. This applies only to investments made for longer than one-year.

The rules that govern these accounts differ from one state to the next. Maryland is an example of this. You must withdraw your funds within 60 calendar days of turning 59 1/2. You can delay until April 1st in Massachusetts. New York is open until 70 1/2. To avoid penalty fees, it is important to plan and take distributions in time to pay all your retirement savings.

Are You Ready to Invest in Gold?

How much money you have saved, and whether or not gold was an option when you first started saving will determine the answer. If you are unsure which option to choose, consider investing in both options.

In addition to being a safe investment, gold also offers potential returns. It's a great investment for retirees.

While most investments offer fixed rates of return, gold tends to fluctuate. Its value fluctuates over time.

But this doesn't mean you shouldn't invest in gold. You should just factor the fluctuations into any overall portfolio.

Another advantage to gold is that it can be used as a tangible asset. Gold is less difficult to store than stocks or bonds. It's also portable.

Your gold will always be accessible as long you keep it in a safe place. Plus, there are no storage fees associated with holding physical gold.

Investing in gold can help protect against inflation. It's a great way to hedge against rising prices, as gold prices tend to increase along with other commodities.

Also, you'll reap the benefits of having some savings invested in something with a stable value. Gold rises in the face of a falling stock market.

Investing in gold has another advantage: you can sell it anytime you want. You can also liquidate your gold position at any time you need cash, just like stocks. You don't even have to wait until you retire.

If you do decide to invest in gold, make sure to diversify your holdings. You shouldn't try to put all of your eggs into one basket.

Don't buy too many at once. Start with a few ounces. Then add more as needed.

It's not about getting rich fast. Rather, it's to build up enough wealth so you won't need to rely on Social Security benefits.

Even though gold is not the best investment, it could be an excellent addition to any retirement plan.


  • If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
  • Instead, the economy improved, stocks rebounded, and gold plunged, losing 28 percent of its value in 2013. (aarp.org)
  • Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
  • If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
  • Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)

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How To

The History of Gold as an Asset

From the beginning of history, gold was a popular currency. It was widely accepted around the world and enjoyed its purity, divisibility and uniformity. It was also traded internationally due to its high value. Because there were no internationally recognized standards for measuring and weighing gold, the different weights of this metal could be used worldwide. One pound sterling, for example, was equivalent in England to 24 carats, and one livre tournois, in France, to 25 carats. A mark, on the other hand, was equivalent in Germany to 28 carats.

In the 1860s, the United States began to issue American coins made from 90% copper, 10% Zinc, and 0.942 Fine Gold. The result was a decrease in foreign currency demand, which led to an increase in their price. This was when the United States started minting large quantities of gold coins. The result? Gold prices began to fall. Due to the excessive amount of money flowing into the United States, they had to find a way for them to repay some of their debt. To do this, they decided that some of their excess gold would be sold back to Europe.

Most European countries distrusted the U.S. Dollar and began to accept gold as payment. Many European countries started to accept paper money as a substitute for gold after World War I. The price of gold rose significantly over the years. Even though gold's price fluctuates, it is still one of the most secure investments you could make.


By: Shannon Lynch, CFP®
Title: 401k Alternatives: 10 Potential Different Options
Sourced From: www.personalcapital.com/blog/retirement-planning/401k-alternatives/
Published Date: Mon, 17 Oct 2022 22:37:37 +0000

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