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Published On: Sat, Aug 4th, 2018

Is it Time to Consider Alternatives to Your 401(k) Plan?

For those not impressed by their employer’s retirement plan, there may come a time when considering any viable options is important.

With a 401(k), potential drawbacks like high fees, limited offerings, and/or no company match can be uninspiring. Retirement plans are no laughing matter – and unless you have a guaranteed income – things can get a little shaky. Not everyone can boast owning hectares of vacant land, as covered in this COMMERCIALCafé study, or own valuable stocks. Therefore, planning for our twilight years is something to take seriously.

These following options are widely accepted alternatives to a 401(k).

photo/Gerd Altmann

IRA An individual retirement account (IRA) can be a great alternative where an employer’s plan is short on options and comes with high fees. When it comes to tax benefits, an IRA is similar to a 401(k) but with lower costs and more benefits. For example, an IRA will allow access to ETFs, stocks, options, bonds, and more. A typical employer-sponsored plan will generally be restricted to mutual or index funds.

While this is regularly the first go-to option for those who want an alternative to 401(k)s, there is one aspect of an IRA which is unfortunate. IRA’s have a lower maximum contribution threshold in terms of tax benefits purposes when compared to a 401(k). It works out at $5,500 against $18,500 for employees under 50.

Taxable brokerage account – Online brokerage accounts work great for long-term investors. They are a great option to the standard retirement account, an even more so for those who have more than the $5,500 permitted for IRAs.

Brokerage accounts do have a better number of investments than a typical employer-sponsored plan. However, there is no tax break on contributions: investments and earnings are subject to taxation. That doesn’t have to sound alarm bells, however, as the IRS does not set limits on how much money you put aside. Buy-and-hold investors are taxed at long-term capital gains tax rates at withdrawal, which can be lower than standard tax rates.

Approach Your Employer – Is this an option to your existing employer-sponsored retirement plan? Yes, it is. You are always free to approach your employer to suggest any improvements to the plan that they are offering employees.

What you can do to get the ball rolling is arrange to discuss the current 401(k) plan with human resources, or your appointed company benefits representative or officer. It is highly likely that any employer will welcome discussion on this, especially if they have designs on making their benefits package as attractive as possible to staff.

Once you have the attention of your employer highlight what it is about the plan that you are not happy with. Ensure that you understand the plan inside out before you do so, and remember: this should not be an opportunity to vent about a 401(k) in general, as they are not exclusively designed by your employer!

Instead, ask what alternatives they could offer and if there will be any changes to the retirement plan in the future. This could be one of the most beneficial conversations you have today.

Author: Jeremy Biberdorf

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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