A survey conducted by Schwab shows that around 20 percent more Americans are investing in a 401K contribution than the previous year. While retirement investment is good, experts believe that a 401K contribution may not be the best thing at the moment.
If you have a 401K match, contributing to secure funds provided by your company is the smart choice. It’s free financial aid when you retire.
However, if your 401K contribution match reached its maximum capacity, is increasing it further the best option for you? Experts say it’s definitely not. Diverting your capital to other accounts that can provide you some tax advantages is what you should focus on. Some of the options you can consider are a health savings account, Roth IRA, or even a traditional one.
While some of these accounts require hefty retirement investment, they also provide much better benefits than 401K contributions.
What Can You Substitute For Your 401K Contribution?
401K contribution might be popular, but that’s only because most people don’t think about exploring other options.
For instance, the health savings account offers you triple tax benefits. First of all, an eligible individual can contribute pre-tax money. Secondly, if you appropriately invest your funds you can enjoy great tax-free gains. Last but not the least, when you use your money for medical expenses. You can withdraw tax-free dollars.
Many people don’t see HSAs as a retirement investment. However, considering the fact that old age invites huge medical bills, HSAs can easily replace 401K contribution.
Moreover, once you surpass the age 65, you can also take your cash out without any penalty.
Traditional IRA lets you make retirement investments pre-tax. Meanwhile, Roth IRA lets you contribute post-tax money. However, it also lets you withdraw tax-free dollars.
If your tax rate is going to increase later in your life, it’s best if you participate in a Roth IRA than a 491K contribution. It will help you stay away from tax while in Social Security. Furthermore, the fees in traditional and Roth IRA are much lower than the 401K contribution. And, with Roth IRA retirement investment, you can safely invest in individual company stocks.
Try Other Forms Of Retirement Investment Before Settling For 401K
Just because the 401K contribution is a common form of retirement investment doesn’t mean that you have to settle for it. Try investing your capital in other accounts before you up your 401K contribution.
As we have seen, there are much better benefits from other forms of investment. You can definitely end with 401K, but you must explore other options first.
Sure, it’s always good to save. However, these are your hard-earned dollars, you really want the most you can get from your retirement investment.