Don’t let weak 401(k) ruin your retirement

There’s a finite list of things you can change at work — and your employer’s retirement plan probably isn’t among them.

What makes for a lousy 401(k) is somewhat in the eye of the beholder, but characteristics might include limited offerings, high fees or no company match. The following four alternatives can ensure your employer’s retirement plan (or lack thereof ) doesn’t derail your plans for retirement.

Open an IRA

An individual retirement account, either of the Roth or traditional variety, can be a good replacement for an employer-sponsored plan plagued by lackluster options and high fees. An IRA provides comparable tax benefits to a 401(k), but with a broader array of assets and generally lower associated fees.

Take exchange-traded funds, for example. These darlings of the investment world still aren’t offered in a majority of 401(k) plans, according to data from the Investment Company Institute, a trade group. With an IRA, you’ll gain access to ETFs, along with stocks, options and bonds; meanwhile, most employer-sponsored plans are confined to mutual or index funds.

There’s one major downside of IRAs, however. These accounts carry a lower maximum contribution threshold for tax-benefit purposes than a 401(k): $5,500 versus $18,500 for workers under age 50. The limits increase to $6,500 and $24,500, respectively, for people 50 and older.

Brokerage account

If an online brokerage account sounds like something reserved for people who trade stocks all day, think again. These accounts also serve the needs of long-term investors and are a good alternative to a conventional retirement account, especially if you’re looking to invest more than the $5,500 allowed for IRAs.

Like with IRAs, you’ll have access to a broader array of investments than most employer-sponsored plans, along with discretion over what associated fees you’ll pay. But there’s a significant disadvantage: There’s no tax break on contributions, so investments are made only after Uncle Sam takes his bite, and earnings will be subject to taxes, too.

There are a few silver linings to this approach, however. Brokerage accounts don’t offer tax benefits, so the IRS imposes no limits on the amount of money you can set aside. For buy-and-hold investors, you’ll only be taxed at long-term capital gains tax rates, which may be lower than ordinary tax rates, when you withdraw. Otherwise, selling investments you’ve held for less than a year will make profits subject to higher capital gains tax rates.

SEPs and HSAs

Even if you have a perfectly fine 401(k), there’s good reason to pad your retirement nest egg with other accounts.

The following alternatives aren’t necessarily difficult to set up, but you’ll need to make sure you qualify and that you follow the relevant rules.

Got a profitable side gig? Consider opening a SEP IRA (SEP is shorthand for simplified employment pension), which is a retirement account for business owners or self-employed workers. These accounts carry a higher contribution limit in theory — a whopping $55,000 for 2018 — but that’s if you’re making a lot of money. Otherwise, the amount can’t exceed 25% of your compensation.

Does your insurance provider offer a health savings account? Good news: There’s a savvy way to use these accounts for retirement (and contributions are tax-deductible and grow tax-free, by the way). Money not used for medical expenses can be withdrawn after age 65 and used for any purposes without penalty; earnings and interest will be taxed as income.