No 401(k)? Here’s Why You Shouldn’t Sweat It

There’s a reason so many people take advantage of 401(k) plans. Not only do these accounts come with generous contribution limits, but many of the companies that sponsor them also match worker contributions to different degrees. Or, to put it another way, you could be in line for several thousand dollars a year in free money just by kicking in enough from your own paycheck to snag your employer match.

But not everyone has access to a 401(k). If you work for a company that doesn’t offer one and you’re not self-employed, you won’t have the option to save in one. But that’s not something that should be a point of concern. In fact, you can still set yourself up for a wealthy retirement even if a 401(k) is off the table.

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401(k)s aren’t perfect

Though 401(k)s allow you to save a lot of money on an annual basis for retirement, they also have their flaws. For one thing, they don’t allow you to hand-pick stocks for your retirement portfolio. That may not be a bad thing if that’s something you’re not interested in doing. But if you’re an active investor who likes having control, it’s a definite negative.

Also, many 401(k)s come with limited investment choices. That means you may not find funds that align with your personal strategy. And, you could get stuck paying hefty fees, especially if you load up on actively managed mutual funds rather than stick to index funds.

And speaking of fees, even if you manage to keep your investment fees low, you’ll still face administrative fees. Those could eat away at your returns over time, leaving you with less retirement wealth.

There are other places to save

If you don’t have access to a 401(k), there are other tax-advantaged savings plan you can work with. First, you can always open an IRA. Though you won’t get to contribute nearly as much money (IRAs max out at $6,000 or $7,000 this year, as opposed to 401(k)s, which max out at $19,000 or $26,000), one thing you will get to do is have more of a say over your investments. That’s because IRAs do let you choose individual stocks to put your money into.

You can also look at saving for retirement in an HSA, or health savings account. Though HSAs can be used outside of retirement, the money you contribute to one is yours to access at any point in your lifetime. And so you can max out your HSA this year at anywhere from $3,600 to $8,200, depending on your age and whether you’re saving individually or for a family, and then carry that money into retirement to cover your future healthcare expenses.

Even if you don’t end up wanting or needing to use your HSA for healthcare purposes, once you turn 65, you can withdraw funds from an HSA for any reason without penalty. You’ll pay taxes on your withdrawals, but you’d do the same with traditional 401(k) distributions.

While having a 401(k) could make it easy to save for retirement, don’t stress if this particular plan isn’t on the table for you. There are still plenty of ways to grow a substantial amount of wealth by the time your senior years roll around.

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