Alternatives to 401(k) Savings Plan for Financial Freedom After Retirement
401(k) retirement savings accounts have many benefits, including matched benefits and hefty contribution limits. However, not all workers in private employment enjoy the great benefits that come with these accounts. Some employers do not have the resources to maintain 401(k) accounts which can be costly and challenging. If you fall in the category of people who do not have access to 401(k) accounts, you should get an alternative, so you don't face an uncertain future upon retirement. Here are three options that will help you attain financial freedom after you stop working.
Individual Retirement Accounts (IRAs)
Your first alternative is to open an Individual Retirement Account. These accounts do not have the hefty contribution limits of 401(k) plans, but they can still come in handy in your preparation for retirement. With IRAs, you can save up to $6,000 every year if you are below 50. For savers who are 50 or above, the contribution threshold for IRAs is $7,000. These figures are not as generous as 401(k) plans offer, but you can still save a substantial amount of money in your IRA.
Individual Retirement Accounts also have one advance over 401(k) plans. In the latter, there are specific funds in which savers can invest. Some of these 401(k)-compatible funds have enormous charges which swallow returns on investments. IRAs are more open. Savers can buy whatever stocks they like for their retirement investments.
Health Savings Accounts (HSAs)
Health savings accounts are not conventional retirement savings accounts, but they are great options for those without 401(k) accounts. People use HSAs to set aside funds to cover qualified medical expenditures. You save in HSAs using pre-tax dollars, and you can withdraw your savings before or during retirement as long as it is for one of the specified medical conditions.
One disadvantage here is that savers have to be under any high-deductible health insurance plan to open an HSA. However, you can invest your HSA savings for great returns. Your money continues growing, and you can efficiently deal with a medical emergency without worries. Currently, individuals who are less than 50 years old can't save over $3,600 in HSAs. Savers who are 55 or more can save up to $4,600 every year. For family accounts, the limit depends on the age of the account holder. If the account holder is younger than 55, the threshold is $7,200, and it’s $8,200 if older than 55.
Traditional Brokerage Accounts
These accounts come with a lot of flexibility though savers won't get any tax benefits. Also, there are no savings limits here, unlike IRAs and HSAs. Like IRAs, you can also decide how you want to invest your savings. However, there is a downside for undisciplined savers. Unlike other retirement savings options, there are no penalties when you withdraw money from your brokerage account. If you can trust yourself to leave your savings untouched till retirement, brokerage accounts are great alternatives.
Conclusion
Many workers that do not have 401(k) plans take this as an opportunity to avoid saving for retirement. Do not make this great mistake. If your employer does not provide 401(k) savings plans, you can still get financial security during retirement with IRAs, HSAs, and traditional brokerage accounts. You can choose to go with one, two, or all three alternatives for utmost financial protection.
