Discovering Alternatives to 401(k) Retirement Plans

For many people, the 401(k)-retirement plan is the gold standard for a stress-free retirement, but millions of Americans do not have access to these plans. Does the lack of access mean that millions of workers are facing a challenging and financially troubling future? No, not necessarily. A 401(k) is only one retirement savings option, and depending on how it is managed, it might not even be the best one.

Workers often weigh the benefits of working for a company against the availability of a 401(k) plan but doing so can significantly mess up their professional trajectory. While a company might not offer employees a 401(k) plan, it might offer other lucrative benefits that make employment worthwhile. Instead of judging employers based on 401(k) plans, consider finding alternatives to retirement savings that work for your proposed future needs.

The Individual Retirement Account: The Most Apparent Alternative

An individual retirement account or IRA is one of the most accessible retirement savings options. Most people will qualify for an account, and it is even beneficial for those who have access to a 401(k) plan. If possible, you might consider a Roth IRA.

The primary benefit of an IRA or Roth IRA comes from its tax-advantaged status. These accounts have the potential to save an account holder tens or hundreds of thousands over the saver’s lifetime. Additionally, the money put into an account is earmarked for retirement, essentially protecting for that purpose.

Unfortunately, the IRA does come with several disadvantages. However, the most glaring issue is the contribution limits. While a 401(k) will allow a maximum yearly contribution of $19,500, an account holder is limited to only $6,000 with an IRA.

Another downside is that you will not find IRAs that include employer contributions. As the IRA is separate from your company or employer, there is no benefit to the employer to contribute in any way, especially since employer contributions are fundamentally free money for workers.

When using an IRA, it is necessary to develop strategies for reaching IRA limits every year. Consider designing a strict budget that incorporates contributions as essentials.

Other Options and Some Less-Than-Ideal Choices

If you are self-employed, you can look into SEP IRAs or SIMPLE IRAs; each of these plans provides a decent alternative to 401(k) plans offered by larger employers. You might even qualify for one of these plans if your employer has fewer than 100 employees. If you are unsure if you qualify for these plans, consider talking to a financial planner or advisor.

Some employers will offer stock options as an alternative to retirement benefits. While stock options are fair in a stable company, they can be risky in startups or other young enterprises. If your company offers stock options, that is fine, but do not depend on those alone for retirement.

Additionally, many people used to use certificates of deposit or CDs as a savings vehicle, but current low-interest rates make such options less appealing. Some people might even turn to annuities or permanent life insurance for tax-deferred retirement options. Still, these are often risky and less effective than an IRA or other investment vehicle.

Try Traditional Investments

Traditional investment strategies can also work to boost your retirement portfolio and income. Mutual funds, bonds, stocks, and rental property are all excellent and potentially lucrative investment vehicles. However, before delving into these options, exhaust your options for tax-free or tax-deferred savings.

Are you without a 401(k)? How do you go about saving for retirement? Leave a comment below.

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