401K Alternative???

[irevolution1879]

Hey guys, i'm looking to get some advice on a potential 401K/Life Insurance alternative. I had to cash in my 401K over a year ago and haven't really recovered -- yet. In the meantime, i'm trying to search for some kind of alternative to the traditional 401K as i simply don't have that much faith in the market and current trends. Suggestions?

Thanks!

[disneysteve]

If you no longer have access to a 401k, are you eligible to fund a Roth? That would be my first choice.

If you earn too much for the Roth, you could invest in a taxable account which obviously isn't nearly as good but if you choose your investments carefully, you can limit the tax implications. Stick to index funds and other tax-efficient investments.

[dczech09]

Go for the Roth or Traditional IRA if you can. Always look for a tax shelter that is available to you.

You mentioned 401k/Life Insurance? Do you mean life insurance as an investment? If you do, then please stay away from life insurance. It is NOT an investment, regardless of what some salespeople may have you believe.

Stick to either a 401k, 403b, Roth IRA, or Traditional IRA. If those are not available to you, then do the taxable investment account. If you go that route, make sure you understand the tax implications with buying, selling, and receiving dividends or distributions.

Again, avoid life insurance as an investment. The term "insurance" should make it obvious what it is meant for

[Petunia 100]

If you have no confidence in the stock markets, that leaves you real estate and/or starting your own business to build wealth. The business will need to be successful, of course.

As already noted, life insurance is not an investment.

[snshijuptr]

As a note because it wasn't explicitly said, 401k/IRA does not equal stock market! You can invest in just about anything with an IRA and you have options with your 401k. You can invest in stocks, bonds, REITs (a kind of mutual fund for real estate), CDs, Money Markets, precious metals, commodities or any number of things within a tax sheltered retirement fund like a 401k, IRA, Roth IRA, 403b, 529, etc.

So really the question is, what do you not have faith in? Business, real estate, the value of stuff (commodities), loan interest rates (bonds), or just the world in general? You don't have to pull money out of your tax sheltered accounts to pull money out of the market.

You should really try taking a risk assessment. I was just playing around with one on Vanguard https://personal.vanguard.com/us/FundsInvQuestionnaire but there are tons and tons of risk assessments. The goal is to find an asset allocation (% of money invested into different things) that won't make you freak out when the market dives again (which it naturally does every few years).

Finally just a final bit of advice. Keep in mind that unless you need money TODAY, you are actually buying assets on sale when the market dives. You will basically be that much richer when the price per unit rises (which it naturally does). Buy low, sell high.

[KTP]

that is funny. I have more faith in the stock markets than I do in my 401K.

The stock market is made up of companies...there will always be companies around the world making profit.

My 401K rights are controlled by the whim of the government. they may decide one day to tax it at 90%.

[disneysteve]

that is funny. I have more faith in the stock markets than I do in my 401K.

The stock market is made up of companies...there will always be companies around the world making profit.

My 401K rights are controlled by the whim of the government. they may decide one day to tax it at 90%.

Good point. Perhaps the fact that I don't have a 401k isn't so bad after all. I control my own investing. I suppose there is the tiny chance they'll change the Roth rules but if they don't grandfather existing accounts, I think lots of people will be converging on Washington with pitchforks.

[kv968]

Is an IRA or other tax-qualified retirement account the best possible choice for you? The answer may surprise you.

Consider this example for a 35 year old male in the 28% Tax Bracket who is contributing $5000 per year. In one alternative, he contributes funds to a mutual fund based IRA with an assumed average return of 7.44%. In the second alternative he pays tax on the contribution and purchase an indexed universal life insurance policy with a historic interest payment of 7.44%. Note that if the mutual fund were to perform better, the life policy would as well.

Here we go again

You can also assume that the person put the IRA money into index funds that charge about 0.06% in yearly expenses with a return of 7.44%. If he/she puts it into a life insurance policy I'm sure the overall expenses will be way more than that (I'm thinking something along the lines of 2-3% per year all said and told). That would kinda eat substantially into the assumed 7.44% return the insurance policy would make wouldn't it?

[Allcoast14]

Life Insurance as 401k alternative

You can use the money, before you retire, tax free. You can use it in retirement tax free. It is tax free to your estate upon death.

[Petunia 100]

You can use the money, before you retire, tax free. You can use it in retirement tax free. It is tax free to your estate upon death.

You can use the money in your checking account tax free, before or after retirement. Does that mean your checking account is a good investment?

[tan fish]

Indeed, as others said. With the Roth you know that $ will grow tax free from here on out. There is no question in my mind that tax rates will go up long-term. That means Traditional IRA and 401K holders will suffer.

[materics22]

401k alternative

That depends on whether or not you are vested in the company match from day one.

"Vesting" means how much of the employee match they will let you take out if you leave your job.

If you are partially to fully vested on you contributions, I would go with the 401(k) because you are getting free money (the match). Then roll the 401(k) over to an IRA after you leave the company.