I Hate My Company's 401(k) Plan. What Are My Other Savings Options?

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  • You may not want to save in a 401(k) with high fees and few investment choices.
  • If your 401(k) isn't up to par, consider saving for retirement in an IRA or taxable brokerage account.

Many companies offer their employees a chance to save for retirement by sponsoring a 401(k) plan. And a lot of the companies that offer a 401(k) also match worker contributions up to a certain amount.

Of course, not everyone has a 401(k), and an estimated 74% of small businesses don't offer one. But just because you have access to a 401(k) doesn't mean it's a great plan to be participating in.

Perhaps your 401(k) offers limited investment choices. Or it could be that you're tired of paying hefty administrative fees that are eating away at your returns. If you don't like your company's 401(k) plan, you should know that you're definitely not stuck with it. Here are a couple of other options you can look at instead.

Save in an IRA

Anyone with earned income can contribute money to an IRA. If you go this route, you'll generally benefit in the form of having more ways to invest your money. That's because IRAs allow you to invest in individual stocks, whereas 401(k) plans do not.

If you opt for a traditional IRA, you'll get a tax break on your contributions, but your withdrawals will be taxable in retirement. If you decide to save for your retirement in a Roth IRA, you won't get a tax break on the money you put in, but your investment gains in that account will be yours to enjoy tax-free, and your withdrawals will be tax-free as well.

Whether you opt for a traditional IRA or a Roth, this year, your contributions will be limited to $6,500 if you're under the age of 50 or $7,500 if you're 50 or older. Employer-sponsored 401(k)s have much higher contribution limits -- $22,500 and $30,000, respectively. But if you're only able to sock away a few thousand dollars a year for retirement, then that shouldn't really matter.

Save in a taxable brokerage account

When you save for retirement in a taxable brokerage account, you don't get tax benefits, but you do get more freedom.

Both IRAs and 401(k)s penalize you for taking withdrawals prior to age 59 1/2. That won't happen in a taxable brokerage account, so if retiring early is something you're interested in doing, then you may want to keep at least some of your savings in one of these accounts.

Also, with a taxable brokerage account, there's no limit as to how much money you can contribute each year. If you get a $10,000 bonus and decide all of it should go into your retirement account, you'll have that option.

You're not stuck with a bad 401(k)

If you're not a fan of your employer's 401(k) plan, you should still contribute enough money to it to claim your company match in full so as not to turn down free money. But beyond that, you can look at an IRA or a taxable brokerage account as a home for your long-term savings. And if your company's 401(k) plan offers no match at all, then you should absolutely feel comfortable ditching it and putting your money elsewhere.

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