4 Retirement Strategies That Run Circles Around a 401(k)

The 401(k) has become synonymous with retirement savings, and for good reason. It’s one of the most widely used retirement savings vehicles, and many employers will match your contributions, which is the closest thing to free money out there. But if you find yourself working for a company that doesn’t match your contributions, I believe there are superior strategies for reaching your retirement goals.

Roth IRA

What if I told you there’s a way to grow your investments without ever needing to pay taxes on your gains? While that sounds too good to be true, it’s perfectly real thanks to the Roth IRA. You don’t get the upfront tax break with a Roth IRA, but you’ll avoid paying any capital gains taxes on the funds you invest, regardless of how much they grow. There are important rules to consider, such as contribution and income limits, but the potential to grow investments for decades without incurring taxation makes this one of the best retirement planning strategies.

Health Savings Account

One of the more underrated retirement vehicles is the Health Savings Account (HSA). HSAs probably don’t get as much attention as other accounts because not everyone has qualifying healthcare coverage that gives them access to HSAs, and the funds you contribute to an HSA can only be used for qualifying healthcare costs. The beauty of an HSA is, if one’s used properly, you can avoid paying taxes altogether. Contributions are pre-tax, and as long as you use the funds for qualified spending, you’ll never pay taxes on the contributions (unlike a 401(k), where you pay taxes upon withdrawal). An HSA will also help you save adequately for rising health costs as you age into retirement. It’s important to note that only select, high-deductible health insurance plans are eligible for HSAs, so make sure to check your plan before considering this retirement strategy.

Taxable brokerage account

I know what you’re thinking: Isn’t the point of retirement planning to avoid taxes? Well, yes, but most 401(k)s have extremely limited investment options — usually a handful of target-date funds. And if you’re not receiving an employer match, I believe the freedom of investment choice outweighs the tax advantage of a 401(k). Remember, you still have to pay taxes when you withdraw funds from your 401(k), but you’re counting on your annual income being lower. With a taxable brokerage account, you can build a diversified portfolio of stocks that will hopefully beat the market, as opposed to investing in mutual funds, which historically underperform their benchmarks.

Rental properties

Real estate can be a great way to diversify your investment portfolio away from equities, and it can offer some predictable income in retirement. If you have little interest in being a landlord, you can hire a property manager to handle the day-to-day operations of your rentals, or invest in real estate investment trusts (REITs). While 2008 taught us that real estate doesn’t always go up in value, rental prices have been one of the most consistent growth stories in recent history. Even in a tough economic period, people always need a roof over their heads. The recent bear market in stocks demonstrates a need for greater diversification in retirement planning. Whether or not we are heading into a recession, you can count on rental prices remaining strong regardless of the economic cycle.

A diversified approach is key

While I do believe the 401(k) is one of the best retirement plans, that is mainly due to the unbelievable benefit of employer matching. Even if your job does offer a match, the incredible advantages of the other strategies noted above are too good to pass on, in my opinion. While most of us probably aren’t saving enough to leverage all of these strategies, diversifying your retirement planning beyond a 401(k) will set you up for greater success.