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.

While 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 don't take advantage of a 401k plan. This raises the obvious question: How can people 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.

Many 401(k), or tax-deferred plans, allow you to make contributions 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 that 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 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 aren't qualified and aren’t governed under 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 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

Which precious metals are best to invest in retirement?

The best precious metal investments are gold and silver. They're both easy to buy and sell and have been around forever. Consider adding them to the list if you're looking to diversify and expand your portfolio.

Gold: One of the oldest forms of currency, gold, is one of mankind's most valuable. It is also extremely safe and stable. It is a good way for wealth preservation during uncertain times.

Silver: Silver has always been popular among investors. It's a good choice for those who want to avoid volatility. Silver is more volatile than gold. It tends to rise rather than fall.

Platinium is another precious metal that is becoming increasingly popular. It is very durable and resistant against corrosion, much like silver and gold. It's also more expensive than the other two.

Rhodium – Rhodium is used to make catalytic conversions. It's also used in jewelry making. And, it's relatively cheap compared to other types of precious metals.

Palladium: Palladium has a similarity to platinum but is more rare. It's also less expensive. This is why it has become a favourite among investors looking for precious metals.

How to Open a Precious Metal IRA

The first step in opening an Individual Retirement Account, (IRA), is to decide if it's something you want. Once you have decided to open an Individual Retirement Account (IRA), you will need to complete Form 806. You will then need to complete Form 5204 in order to determine which type IRA you are eligible. This form should be filled within 60 calendar days of opening the account. You can then start investing once you have this completed. You might also be able to contribute directly from the paycheck through payroll deduction.

You must complete Form 8903 if you choose a Roth IRA. Otherwise, the process will look identical to an existing IRA.

To be eligible to have a precious metals IRA you must meet certain criteria. The IRS requires that you are at least 18 years old and have earned an income. Your earnings cannot exceed $110,000 per year ($220,000 if married and filing jointly) for any single tax year. You must also contribute regularly. These rules will apply regardless of whether your contributions are made through an employer or directly out of your paychecks.

A precious metals IRA can be used to invest in palladium or platinum, gold, silver, palladium or rhodium. However, you won't be able purchase physical bullion. You won't have the ability to trade stocks or bonds.

Your precious metals IRA can be used to directly invest in precious metals-related companies. This option is offered by some IRA providers.

There are two main drawbacks to investing through an IRA in precious metallics. First, they're not as liquid as stocks or bonds. It is therefore harder to sell them when required. They also don't pay dividends, like stocks and bonds. You'll lose your money over time, rather than making it.

What should I pay into my Roth IRA

Roth IRAs are retirement accounts that allow you to withdraw your money tax-free. You can't withdraw money from these accounts before you reach the age of 59 1/2. However, if your goal is to withdraw funds before that time, there are certain rules you must observe. First, you cannot touch your principal (the original amount deposited). This means that no matter how much you contribute, you can never take out more than what was initially contributed to this account. If you decide to withdraw more money than what you contributed initially, you will need to pay taxes.

The second rule is that you cannot withdraw your earnings without paying income taxes. So, when you withdraw, you'll pay taxes on those earnings. Let's take, for example, $5,000 in annual Roth IRA contributions. Let's further assume you earn $10,000 annually after contributing. The federal income tax on your earnings would amount to $3,500. The remaining $6,500 is yours. You can only take out what you originally contributed.

You would still owe tax on $1,500 if you took out $4,000 of your earnings. You'd also lose half the earnings that you took out, as they would be subject to a second 50% tax (half of 40%). So even though you received $7,000 in Roth IRA contributions, you only received $4,000.

There are two types of Roth IRAs: Traditional and Roth. Traditional IRAs allow pre-tax contributions to be deducted from your taxable tax income. You can withdraw your contributions plus interest from your traditional IRA when you retire. A traditional IRA can be withdrawn up to the maximum amount allowed.

Roth IRAs do not allow you to deduct your contributions. Once you are retired, however, you may withdraw all of your contributions plus accrued interest. There is no minimum withdrawal limit, unlike traditional IRAs. Your contribution can be withdrawn at any age, not just when you reach 70 1/2.

Should you open a Precious Metal IRA

Before opening an IRA, it is important to understand that precious metals aren't covered by insurance. It is impossible to get back money if you lose your investment. This includes losing all your investments due to theft, fire, flood, etc.

It is best to invest in physical gold coins and silver coins to avoid this type loss. These coins have been around for thousands and represent a real asset that can never be lost. These items are worth more today than they were when first produced.

You should choose a reputable firm that offers competitive rates. A third-party custodian is a good option. They will protect your assets while giving you easy access whenever you need them.

When you open an account, keep in mind that you won't receive any returns until your retirement. Do not forget about the future!


  • Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
  • Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
  • (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
  • 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)
  • You can only purchase gold bars at least 99.5% purity. (forbes.com)

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How To

How to keep physical gold in an IRA

The best way to invest in Gold is by purchasing shares of companies that produce it. However, there are risks associated with this strategy. It isn't always possible for these companies to survive. Even if they survive, there's always the risk that they will lose money due fluctuations in gold prices.

An alternative option would be to buy physical gold itself. You'll need to open a bank account, buy gold online from a trusted seller, or open an online bullion trading account. The advantages of this option include the ease of access (you don't need to deal with stock exchanges) and the ability to make purchases when prices are low. It's also easier to see how much gold you've got stored. The receipt will show exactly what you paid. You'll also know if taxes were not paid. You have less risk of theft when investing in stocks.

There are also some drawbacks. Bank interest rates and investment funds won't help you. It won't allow you to diversify any of your holdings. Instead, you'll be stuck with what's been bought. The taxman might also ask you questions about where your gold is located.

If you'd like to learn more about buying gold in an IRA, visit the website of BullionVault.com today!

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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