What Are The Best 401K Alternatives?

More employers are ending 401K benefits for their employees. Saving and planning for retirement can be difficult without a program, like 401K, being set up.

What if your employer doesn’t offer a 401K plan? What are 401K alternatives? Here are a few of the best:

The Best 401K Alternatives

Variable Annuities

A variable annuity is one of the best 401K alternatives. Essentially a variable annuity is a contract between an investor and insurance company. You can purchase a variable annuity by making one payment or multiple payments. The insurance company then agrees to make payments to you (immediately or at a future date and time). If you are looking at a variable annuity as a 401K alternative you would want to postpone payment until retirement.

There are high penalty fees associated with variable annuities. Be sure to clarify the terms of the annuity before investing.

Traditional or Roth IRAs

Another great alternative for a 401K is an IRA or “individual retirement account.” You can get a traditional or Roth IRA. If you’re under the age of 50 you can contribute up to $5,000 per year. Traditional IRAs are tax deductible now, however, you will have to pay taxes on the money when you pull it from the account later (during retirement). A Roth IRA, on the other hand, offers no immediate tax deduction but the money in the account is not taxed when you withdraw it.

Be sure to make sure you can qualify for the IRA before setting one up. You can get an IRA through most banks and investment companies.

SEP IRAs

SEP IRAs (Simplified Employee Pension Individual Retirement Account) are great 401K alternatives if you freelance or own your own business. These types of IRAs are similar to traditional IRAs. You see an immediate tax benefit and it is good for a business of any size (including if you are your own boss).

Just like with traditional and Roth IRAs you will want to be sure you qualify for a SEP IRA before investing. You can check with your bank or financial advisor for more information.

Index Funds

Index funds are another great way to supplement or replace your 401K. It is a type of investment fund that is based on an index of stocks (like S&P). Your investment will reflect the performance of the index.

Prior to investing in index funds you’ll want to do some research and get professional financial advice.

 

Don’t Like These 401K Alternatives?

If you don’t like the 401K alternatives you can always encourage your company to adopt a 401K plan for its employees. You can also get a 401K through a private company as well. Many companies that offer the 401K alternatives mentioned above also offer 401K plans that you can take advantage of.

No matter how you do it, planning ahead for retirement and trying to obtain a secure financial future is important. A 401K plan or any of these 401K alternatives are great ways to do just that!

Photo: Ron Reiring