401k Alternatives: 10 Potential Different 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.

However, although the majority of employees work in companies that offer 401k plans through work, 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) 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 will then 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 limited. 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 aren't qualified and are not governed by ERISA. Distributions made before the age of 59 1/2 don't attract a 10% penalty for early withdrawal 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 advisable that you 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 for taking out the funds. You will still have to pay income taxes, just like a 401 (k) plan.

9. Taxable brokerage account

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. You can also use the right tools to 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

What precious metals will be allowed in an IRA account?

Gold is the most widely used precious metal for IRA account accounts. You can also invest in gold bullion bars and coins.

Precious metals, which don't lose any value over time, are considered safe investments. They're also considered a great way to diversify an investment portfolio.

Precious Metals include palladium, silver, and platinum. These metals share similar properties. Each one has its own uses.

Platinum is used to make jewelry, for example. For the creation of catalysts, palladium can be used. The production of coins is done with silver.

When deciding which precious metal to choose, consider how much you expect to spend on your gold. You might be better off buying gold that costs less per ounce.

You need to decide if you want your investment to remain private. If you do, you should choose palladium.

Palladium is more valuable than gold. It is also more rare. It's likely that you will have to pay more.

When choosing between gold or silver, another important aspect is the storage fees. Storage fees for gold are determined by its weight. You will pay more if you store larger amounts.

Silver is stored according to its volume. You'll pay less if you store smaller quantities of silver.

Keep in mind all IRS rules when you store precious metals inside an IRA. This includes keeping track and reporting transactions to the IRS.

Is it possible to take physical ownership of gold from my IRA

Many ask themselves whether they can physically possess gold in an IRA account. This is a fair question because there isn't any legal way to do it.

But if you carefully examine the law, there's nothing stopping you from owning gold in your IRA.

The problem is that most people don't realize how much money they could save by putting their gold in an IRA instead of keeping it in their own homes.

It's simple to throw out gold coins but difficult to put them into an IRA. If you decide to keep your precious metal in your own home you will have to pay two taxes. One for the IRS, and one for your state.

However, it is also possible to lose the gold in your home and pay twice tax. Why would you want to keep your gold in your house?

You may argue that it is necessary to have the assurance that your gold safe in your home. You can protect your gold from theft by storing it somewhere more secure.

If you're planning on visiting frequently, it is best to keep your gold safe at home. Theft can easily take your gold when you're not home.

An insured vault is a better choice for gold storage. You can rest assured that your gold is safe from theft, fire, earthquake, flood, and other hazards.

You won't be responsible for paying any property tax if you store your gold in a vault. Instead, income tax will be charged on any gains made from the sale of your precious metal.

A IRA can be a great option if you want to avoid paying tax on your gold. An IRA allows you to keep your gold free from income taxes, even though it earns interest.

Since you aren't required to pay capital gains tax on your gold, you'll have access to the full value of your investment whenever you want to cash it out.

You won't have to move your gold because IRAs are federally regulated.

Bottom line: An IRA can allow you to own gold. Fear of losing it is the only thing that will hold you back.

How much of your portfolio should you hold in precious metals

Protect yourself against inflation by investing in physical gold. Because precious metals are a long-term investment, you can not only buy in to the current value but also the future potential of these assets. The value of your investment increases with rising prices.

If you hold on to your investments for at least five years, you will receive tax benefits on any gains. After that time, capital gains taxes will be due. If you want to learn more about how to buy gold coins, visit our website.

What is the interest rate on a gold IRA?

It all depends on how big your investment is. If you have $100,000, then yes. If your net worth is less than 100,000, no.

How much money you place in an IRA will determine how it earns interest.

If you have more than $100,000 in retirement savings each year, you might consider opening a regular brokerage accounts.

There you will earn more interest, but also be exposed to higher risk investments. It's not a good idea to lose all of the money you have invested in the stock exchange.

An IRA is better if you have $100,000 to invest per year. At least until there is a rebound in the market.

What Is a Precious Metal IRA?

Precious Metals are a great way to invest in retirement funds. They are a timeless investment that has held its value since the beginning of time. You can diversify your portfolio by investing in precious metals, such as gold, platinum, and silver.

Certain countries even allow their citizens to save money in foreign currencies. You can buy Canada gold bars and keep them home. You can also sell these gold bars for Canadian dollar when you visit family.

This is a simple way to make investments in precious metals. This is especially helpful if you don't live in North America.


  • SEP-IRA”Simplified employee pension” For self-employed people like independent contractors, freelancers, and small-business ownersSame tax rules as traditional IRASEP IRA contributions in 2022 are limited to 25% of compensation or $66,000, whichever is less4. (sltrib.com)
  • If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal so that 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)
  • You can only purchase gold bars of at least 99.5% purity. (forbes.com)
  • Same tax rules as traditional IRA SEP IRA contributions in 2022 are limited to 25% of compensation or $66,000, whichever is less Before setting up a Silver IRA, understand the fees and IRS restrictions. (sltrib.com)

External Links





How To

How to Buy Gold For Your Gold IRA

Precious metal can be used to refer to gold, silver or platinum as well as osmium and ruthenium. It refers only to elements with atomic number 79-110 (excluding helium). These elements are considered valuable because they are rare and beautiful. Precious metals include gold and silver. Precious metallics are frequently used as jewelry, money and industrial goods.

Supply and demand affect the gold price daily. As investors seek safety from unstable economies, there has been an increase in demand for precious metals in the last decade. This has resulted in a substantial rise in the prices. However, the increasing cost of production has made some people concerned about investing in precious metals.

Gold is a good investment because it's rare and durable. Contrary to other investments, gold does not lose its value. You can also sell or buy gold without paying any taxes. There are two ways to invest in gold. You can buy bars and gold coins, or invest into gold futures contracts.

Physical gold coins and bars provide immediate liquidity. They're easy to trade and store. However, they are not very inflation-proof. To protect yourself from rising gold prices, you can consider buying gold bullion. Bullion, also known as physical gold and available in different sizes, is physical. Bullion comes in a variety of sizes, including kilo bars and one-ounce pieces. Bullion is normally stored in vaults that are fire- and theft-resistant.

Buy gold futures to own shares and not actual gold. Futures let you speculate about how gold's price might change. Buying gold futures exposes you to gold's price without owning the physical commodity itself.

A gold contract could be purchased if you wanted to speculate on the future price of gold. My position at the expiration of the contract will be either “long-term” or “short-term.” A long contract is one in which I believe that the price of gold will rise. I'm willing now to pay someone else money, but I promise I'll get more money at the end. A short contract on the other side means that I believe gold's price will fall. So, I'm willing to take the money now in exchange for the promise that I'll make less money later.

When the contract expires, I'll receive the amount of gold specified in the contract plus interest. That way, I've gained exposure to the price of the gold without actually having to hold the gold myself.

Precious metals are a great investment as they are hard to counterfeit. Paper currencies can be easily faked by printing new bills. Precious metals are not easy to counterfeit. Precious metals have remained stable over time because of this.


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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