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4 Ways to Save for Retirement Better Than a 401(k)

By Catherine Brock – Nov 15, 2021 at 9:00AM

Key Points

  • The HSA and Roth IRA both allow for tax-free withdrawals in retirement.
  • A taxable brokerage account has no restrictions on contributions or withdrawals -- but no tax perks, either.
  • You can build wealth and income with smart real-estate investments.

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Secure tax-free retirement income and more with these four strategies.

The 401(k) is popular among retirement savers -- some 60 million U.S. workers are actively stashing money into these work-based retirement accounts. Those savers benefit from the 401(k)'s usual perks, which include tax-deferred earnings growth and often, free employer-matching contributions.

These perks are great if you can accept the trade-offs. As easy as it is to save to a 401(k), the account is inflexible with respect to withdrawals. The tax structure may also be inefficient for many savers.

Fortunately, there are other ways to save for retirement besides the standard workplace retirement plan. Below are four options that may suit you better than a 401(k).

Smiling senior sits on the floor at home.

Image source: Getty Images.

1. For minimal taxes in retirement: HSA + Roth IRA

With regular contributions to a health savings account (HSA) and a Roth IRA, you can build a nice pot of tax-free retirement income. The table below outlines the key features of these accounts.






You must have a high-deductible health plan (HDHP) to contribute.

Withdrawals for medical expenses are tax-free.

Contributions are tax-deductible.

Roth IRA

Your 2021 modified adjusted gross income must be below $140,000 as a single filer or below $208,000 as a married filer.

Qualified withdrawals in retirement are tax-free.

Contributions are not tax-deductible.

Data source:

As you can see, both accounts provide tax-free income in retirement. The HSA stands out as the only retirement account that offers tax-deductible contributions, tax-deferred earnings, and tax-free withdrawals. The Roth IRA has the tax advantages on withdrawals and earnings, but the contributions are not tax-deductible.

The drawback of building your retirement nest egg with an HSA and a Roth IRA is the limit you'll face on annual contributions. In 2021, the HSA contribution limits are $3,600 for individual coverage and $7,200 for family coverage. The Roth IRA contribution limit this year is $6,000, or $7,000 if you're 50 or older.

2. For flexibility: Taxable brokerage account + IRA

If withdrawal flexibility is your primary concern, you might prefer saving to a taxable brokerage account. Your taxable account has no withdrawal (or contribution) limitations, and you save with after-tax money.

You also pay taxes annually on dividends, interest, and realized gains earned in your brokerage account. Tax-efficient funds and buy-and-hold stocks that don't pay dividends will keep taxes to a minimum.

A traditional IRA would complement your taxable account nicely. The IRA offers tax-deductible contributions, plus tax-deferred earnings. The tax deduction on contributions provides some current-year tax relief. And the tax deferral on earnings gives you a place to diversify into income-generating securities without tax consequences.

With both accounts together, you can invest in what you want -- while keeping your tax bill low and maintaining flexibility on withdrawals.

3. For passive income: Real estate

Real estate provides two ways to earn: through price appreciation and rent. A nice portfolio of rent-generating properties can deliver an ongoing stream of mostly passive income, plus a rising balance sheet. The income and associated wealth could enable you to retire early.

Investing in real estate requires some upfront cash and know-how. But the good news is that if you have a down payment, you can usually finance your property purchases over 30 years. If the rental income covers your mortgage payment and other expenses, the property essentially pays for itself.

4. For lower out-of-pocket costs: Side hustle + SEP IRA

If your current income limits your ability to save for retirement, a side hustle might be your answer. As soon as your side gig starts making money, you can open a SEP IRA. In that account, you can contribute up to 20% of your net self-employment earnings. And while you're at it, you could invest the rest of your side hustle earnings in a taxable brokerage account.

SEP IRAs have high dollar contribution limits, which means your contributions have room to grow along with your business. In 2022, you can contribute up to $61,000 for the year.

Eventually, this strategy could give you two sources of retirement funding: your SEP IRA savings, plus ongoing cash flows from your business.

Saving for retirement outside a 401(k)

The 401(k) isn't a bad way to save for retirement, but your needs and retirement timeline may demand a different approach. The nice thing is, you have several resources and strategies available to build a retirement savings program that works for you.

Whether you love the idea of tax-free retirement income or you see yourself retiring young on rental or business income, those outcomes are possible. All it takes is some planning and the discipline to stick to that plan over time.

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