For years, saving money in your 401(k) has had benefits that no other investment could match. Now, though, many of those advantages are disappearing -- and some investors may be better off keeping out of their 401(k)s entirely.

Disappearing perks
The unique aspect of 401(k)s is that they give your employer a chance to make retirement contributions on your behalf. Through a number of methods, such as profit-sharing contributions and employer matching, your employer can add to your retirement account, encouraging you to boost your own savings.

In some people's eyes, that employer commitment is a vital part of what makes 401(k)s work. Given that many companies used 401(k) plans to replace pensions -- which required a huge investment from employers -- many find it only fair to expect employers to shoulder the lighter burden of additional contributions.

But that hasn't happened. Instead, dozens of companies, including Weyerhaeuser (NYSE:WY), MGM Mirage (NYSE:MGM), and Paychex (NASDAQ:PAYX), have suspended matching contributions to some or all employees' 401(k) accounts.

Pros and cons
Without the matching perk, it becomes a lot less clear whether contributing to a 401(k) is a good idea. On the plus side are these factors:

  • Tax savings. 401(k) plans give employees the biggest opportunity to earn an immediate tax break. In 2009, employees can contribute up to $16,500 -- $22,000 for those 50 or over -- and exclude it from their gross income. That can increase your tax refund by thousands of dollars.
  • Portability. When you change jobs, many employees have three options: You can keep the account with your old employer, transfer it to your new employer's 401(k) plan, or roll it over into your own personal IRA.

But 401(k)s are far from perfect. Many plans offer only high-cost investment options that you wouldn't normally pick if you had other choices. Moreover, while you do receive the upfront tax benefit, you pay the price later: When you withdraw money from your 401(k), it gets taxed at whatever your ordinary income tax rate happens to be at the time. With many expecting tax rates to rise in the future, that's not an attractive feature.

Consider your alternatives
Depending on how much money you have to save, think about these alternatives to 401(k)s:

  • Go Roth. With a Roth IRA, you trade the 401(k)'s upfront tax deduction on contributions for a lifetime of tax-free income on your Roth investments. If you plan to include big-growth prospects like Hansen Natural (NASDAQ:HANS) and Apple (NASDAQ:AAPL) in your portfolio and hold them for big gains over the years, then a Roth is the best way to max out your after-tax returns. Annual limits are lower, though -- you can contribute a maximum of only $5,000 to a Roth this year, and income limits prohibit some people from participating at all.
  • Use your regular account. Under the current tax structure, qualified dividend income gets taxed at a lower rate, as do long-term capital gains. So while you'll still pay some tax on shares of PepsiCo (NYSE:PEP), Johnson & Johnson (NYSE:JNJ), and any other dividend-paying stocks you own in your regular taxable brokerage account, the tax burden won't be as bad as it might otherwise be -- and you won't have to worry about locking up that money until you retire. Especially if you see a decent possibility of money troubles ahead, you certainly don't want to have to pay a 10% penalty to withdraw money from a 401(k).

It's unfortunate that so many employers have taken away one of the best features of the 401(k). If you're lucky enough to still have matching contributions available to you, then the free money they represent is often enough to outweigh their problems. For many, though, it's time to take a hard look at whether you'll do better saving your money elsewhere.

Learn more about making the most of your retirement options:

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Fool contributor Dan Caplinger is still making his 401(k) contributions and appreciates the low-fee options he has. He doesn't own shares of the companies mentioned in this article. Hansen Natural is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. Paychex is a Motley Fool Inside Value pick. Johnson & Johnson, Paychex, and PepsiCo are all Motley Fool Income Investor selections. The Fool's disclosure policy has your back.