401(k) Alternatives

Not having access to a 401(k) through your employer shouldn't deter you from building your retirement savings. There are other options available that can help you create a comfortable nest egg for your golden years, like an IRA, a cash balance pension plan or a taxable brokerage account. Learn the differences between these options and how they can help you achieve your retirement goals.

  • Written by
    Lindsey Crossmier

    Lindsey Crossmier

    Financial Writer

    Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.

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  • Edited By
    Savannah Pittle
    Savannah Pittle, senior financial editor for RetireGuide

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is a professional writer and content editor with over 16 years of professional experience across multiple industries. She has ghostwritten for entrepreneurs and industry leaders and been published in mediums such as The Huffington Post, Southern Living and Interior Appeal Magazine.

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  • Financially Reviewed By
    Toby Walters, CFA®
    Toby Walters, CFA

    Toby Walters, CFA®

    Chartered Financial Analyst and Paraplanner

    Toby Walters, CFA®, has over 25 years of financial research experience. With a knowledge and understanding of researching and analyzing financial data, he has developed a unique and experienced viewpoint on money matters. He has been a chartered financial analyst since 2003, and most recently a portfolio analyst and paraplanner.

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  • Published: April 21, 2023
  • Updated: August 28, 2023
  • 5 min read time
  • This page features 6 Cited Research Articles
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A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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How to Cite RetireGuide.com's Article

APA Crossmier, L. (2023, August 28). 401(k) Alternatives. RetireGuide.com. Retrieved May 22, 2024, from https://www.retireguide.com/retirement-planning/investing/accounts/401k/alternatives/

MLA Crossmier, Lindsey. "401(k) Alternatives." RetireGuide.com, 28 Aug 2023, https://www.retireguide.com/retirement-planning/investing/accounts/401k/alternatives/.

Chicago Crossmier, Lindsey. "401(k) Alternatives." RetireGuide.com. Last modified August 28, 2023. https://www.retireguide.com/retirement-planning/investing/accounts/401k/alternatives/.

Key Takeaways
  • Some 401(k)s have high fees and limited investment opportunities compared to other retirement account options like Roth IRAs.
  • If you’re a late retirement saver, consider a cash balance pension plan or taxable brokerage account for more flexibility and higher gains.
  • You can add other alternative saving vehicle add-ons to your retirement plans, like CDs or annuities.

Challenges of Traditional 401(k) Plans for Retirement

Not every employer offers a 401(k) plan. Even if they do, it can have high fees and limited investment opportunities. If you’re nearing retirement age, this could limit a 401(k) as your primary savings vehicle.

Key Challenges of a 401(k)
  • An employer-sponsored plan is not available to everyone
  • Can have high account management fees
  • Can have limited investment opportunities, such as a handful of mutual fund options
  • Has a high risk of taxation
  • Comes with penalties if you need your money before age 59½

According to the most recent data from the U.S. Bureau of Labor Statistics, 68% of private industry workers had access to a retirement plan, and only 51% participated in one.

“Whether the taxes for your 401(k) have a large negative effect on you depends on your other streams of income and how much you’re taking out,” said Adrienne Ross, CFP®, ChFC®, AFC®, and founder of Clear Insight Financial Planning.

“Let’s say you have Social Security, a pension and are taking money out of your 401(k). Your traditional 401(k) is going to get taxed at your ordinary income rate,” Ross told RetireGuide. “If your income places you in a higher bracket, you will owe more in taxes.”

Another downside to consider is how the IRS taxes your distributions. Every distribution you take from your 401(k) will get taxed at your ordinary income rate — your highest rate. Ordinary income rates today range from 10% to 37%.

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Alternatives to 401(k) Retirement Plans

Retirement accounts, such as 401(k)s, are a popular way for individuals to save for retirement, but they may not be the best option for everyone. There are several alternative retirement account options that may better suit your financial goals and needs.

An individual retirement account (IRA), cash balance pension plan and a taxable brokerage account can also be beneficial alternatives to a 401(k) plan. Ross told RetireGuide that she recommends IRAs. “If your employer doesn’t offer a 401(k), the traditional and Roth IRAs are a great starting point.”

When considering any of the alternatives listed below, evaluate the tax benefits, gains and flexibility of each option. There’s no such thing as a one-size-fits-all retirement savings vehicle. Make sure the alternative satisfies the goals you have for your personalized retirement plan.

There are different IRAs — such as the traditional, Roth and SEP — each of which has features, benefits and downsides to consider.

If you’re looking for a flexible alternative with an array of investment options, consider a taxable brokerage account. A cash balance pension plan is specifically designed for late-life savers (just starting to save in their 50s), according to the Journal of Accountancy.

401(k) Alternatives
AdvantagesContribution LimitsRequired Minimum Distributions
401(k)
  • Comes with high contribution limits, tax breaks and employer matches.
Annual contribution cap is $22,500 in 2023. You can delay taking your RMDs until the year you retire unless you’re a 5% owner of the business sponsoring the plan.
Traditional IRA
  • Earnings and gains aren’t taxed until you make a withdrawal.
  • You can invest in stocks, annuities, bonds and other options.
The annual contribution cap is $6,500 if you’re under 50 in 2023. If you’re over 50, your limit is $7,500. You must make withdrawals once you turn 72 (73 if you reach age 72 after Dec. 31, 2022).
Roth IRA
  • Your earnings grow tax-free with no RMDs and there is no penalty on withdrawals after a certain age.
  • Can invest in stocks, annuities, bonds and other options.
The annual contribution cap is $6,500 if you’re under 50 in 2023. If you’re over 50, your limit is $7,500.You only need to make withdrawals after the owner of the Roth IRA dies.
SEP IRA
  • Best for providing tax-deferred gains for someone self-employed.
  • Can invest in stocks, annuities, bonds and other options.
The annual contribution cap is $6,500 if you’re under 50 in 2023. If you’re over 50, your limit is $7,500.You must start making withdrawals once you turn 72 (73 if you reach age 72 after Dec. 31, 2022).
Taxable Brokerage Account
  • Room for ample growth with little to no restrictions.
  • Some investment options include stocks, mutual funds, cryptocurrency and bonds.
No contribution limit.There are no RMDs for most investments in a taxable brokerage account.
Cash Balance Pension Plan
  • Business owners can contribute three or four times the dollar limits of other types of retirement plans such as 401(k)s.
  • Offers flexibility and benefits as lifetime annuities.
Varies by age and income.You must start making withdrawals once you turn 72 (73 if you reach age 72 after Dec. 31, 2022).
IRA vs. 401(k)
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Other Retirement Saving Alternatives

Other savings vehicles to consider as you near retirement include annuities, health savings accounts (HSAs) and certificates of deposit (CD).

While these alternatives aren’t as similar to a replacement as a 401(k) as other options, they still offer opportunities to grow your savings. Think of them as add-on investments: they shouldn’t be your primary source of retirement savings, but they’re good complementary accounts.

Can you roll your IRA or 401(K) into an annuity?
CDs
CDs serve as savings accounts that grow a fixed amount of money at a set rate over a set term. Terms usually last six months to 5 years, and each term comes with a specific rate of return. Available through almost any financial institution, different CDs provide unique features.
Annuities
An annuity is a customizable contract that provides a guaranteed fixed stream of income. They have tax-deferred growth potential throughout the length of the contract.
Health Savings Account (HSA)
An HSA lets you deposit money for qualified medical expenses and withdraw it tax-free. You can only open an HSA if your health plan is a high-deductible HSA-specific plan.
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Last Modified: August 28, 2023
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6 Cited Research Articles

  1. Internal Revenue Service. (2023, April 6). Topic No. 557 Additional Tax on Early Distributions From Traditional and Roth IRAs. Retrieved from https://www.irs.gov/taxtopics/tc557
  2. Donaldson, G. (2023, January 1). The Rise of the Cash Balance Pension Plan. Retrieved from https://www.journalofaccountancy.com/issues/2023/jan/rise-of-the-cash-balance-pension-plan.html
  3. Chris Reddick Financial Planning. (2022, December 7). Taking RMDs With Multiple Retirement Plans, And Government Pensions. Retrieved from https://www.chrisreddickfp.com/blog/taking-rmds-multiple-retirement-plans-and-government-pensions
  4. Internal Revenue Service. (2022, October 21). 401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500. Retrieved from https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500
  5. U.S. Bureau of Labor Statistics. (2021, November 1). 68 Percent of Private Industry Workers Had Access to Retirement Plans in 2021. Retrieved from https://www.bls.gov/opub/ted/2021/68-percent-of-private-industry-workers-had-access-to-retirement-plans-in-2021.htm
  6. Reese, M. (2019, August 21). 5 Reasons a 401(k) May Be the Worst Account to Have in Retirement. Retrieved from https://www.kiplinger.com/article/retirement/t001-c032-s014-a-401-k-may-be-worst-account-to-have-in-retirement.html