In retirement, one should plan ahead, and a 401(k) plan is one of the most solid, traditional options out there. Are 401ks the only route to post-retirement success or are they just a way to get there? This may surprise you.
Even if you do not have a plan for 401(k), you can still make a good retirement. Nevertheless, you’ll need to start putting your ducks in a row early. Some alternatives to traditional 401(ks may pose higher risks. But, before you let your mind wander, let’s delve into the varied options.
Individual Retirement Accounts (IRAs)
One ever-popular alternative to a traditional 401(k), and one you likely think of first when discussing retirement account alternatives, is the IRA. There are two options for IRA types to consider. There are two types of IRAs. The first is a traditional IRA and the second is a Roth IRA.
An IRA is different from a traditional 401 (k) for investors. IRAs have lower contribution limits than 401(k). IRAs do not offer employer match options, which is a disadvantage.
Despite their drawbacks, Roth IRAs as well as traditional IRAs have many benefits. You have more options for investing than your 401(k), and you can choose how your investments will be made with IRAs. There are no minimum withdrawal requirements for IRAs. Qualified withdrawals are also tax-free.
Investors have the opportunity to enjoy the best of both worlds by leveraging the company’s match on a 401 (k) and investing extra funds into an IRA/Roth IRA.
Individual, Non-Retirement Investing
By managing your own investment portfolio, you enjoy unparalleled control over your investments. Investors who do so have access to a broad range of strategies, including the seasonality of stocks. Investors should also consider leveraging stocks that pay healthy dividends, which typically pay quarterly for every share held.
This type of investment comes with greater risk because individual investors don’t have the same experience as professionals who work for investment companies. However, it can still be a great way to build wealth for retirement.
Health Savings Accounts
A health savings account could benefit your retirement budget in an unexpected way. HSAs (or health savings accounts) are tax-free investments that can be used to pay for medical expenses during the year.
HSA funds can be carried over to the next year even if they are not used. Unlike a flexible spending account or FSA, it’s not a use-it-or-lose-it situation. You can increase your account if you stay healthy and do not withdraw funds from an HSA.
Like IRAs they allow you to contribute a maximum amount. You will not be penalized if you withdraw for medical reasons. After you retire, you are free to withdraw for any reason at any moment. Since the contributions to these accounts aren’t taxed when you make them, they are taxed as income when you withdraw them in retirement.
There are many options for those who plan to retire. Investors don’t have to stick to the 401k route. Combining a few of these retirement-saving strategies will have you sitting pretty when it’s time to leave the cubicle.