Alternatives to your retirement plan (401k)

You should be on the lookout for alternatives to the traditional retirement saving plan, known in the US as the 401k. Your 401k funds can’t be accessed for early retirement without penalty, and they are exposed to the market. If your salary increases or decreases, the money you set aside is often the same amount, which gives you a disadvantage. 

Real Estate

Investing in real estate can give you an good source of passive income that can add up significantly over time. You don’t have to be a handyman who fixes up houses and flips them. You can make a nice bundle of money by buying properties and acting as a landlord. Of course, you’ll need the initial capital or line of credit to purchase real estate, but once you’ve secured the funding, there’s potential for gains. It’s even easier if you have a partner. Start by attending housing auctions where you can buy homes for low prices. If you don’t have the skill to fix old homes by yourself, hire a contractor to fix the inefficiencies. You then can either rent it out to tenants for a consistent passive income or sell it. 

Dividend Stocks

While it might seem counter-intuitive to invest retirement funds in an account that isn’t a tax shelter, dividend stocks have quite the allure. Frequently, dividend stocks offer a much better return than 403b funds. Plenty of investors report dividend stock returns of 8% to 10%, while 403b funds returns often hover around 5%. Dividend stocks are also cheaper in terms of transactions costs. A transaction involving dividend stocks will cost between $7 and $10. Expense ratios on other retirement fund accounts often average 1% or more of the balance. When an investor moves $50,000 of his money, the transaction cost is $500. An investor could execute 50 dividend stock transactions for the same amount of money but gain more flexibility and strategic advantages.

Tax Managed Mutual Funds

Tax managed mutual funds apply a variety of investing techniques such as the sale of high-cost shares and the offsetting of gains (or losses) to decrease taxes and net realized gains. Index funds are especially attractive because they trade stocks according to a benchmark instead of trading at a high frequency in an attempt to play the market. Exchange traded funds (ETFs) qualify as index funds and are traded similarly to stocks but face minimal taxes. They are favored over traditional regular index funds because of their special means of share creation and redemption. Some investors even favor actively managed mutual funds to 401ks because they are so tax efficient. The tax rate of any of these funds can be checked with the statistic known as the tax cost ratio.

Investors should be aware that other retirement savings methods are available besides the 401k. These options provide a diverse array of advantages, such as less tax exposure, the ability to access funds for early retirement and greater investing flexibility.

It is clear that a 401k is not the sole means of saving for the future. Make use of the alternatives described above and you will diversify your savings to reduce risk and ultimately ensure your own retirement.

Multiple journalists and analysts are behind the name Edward Talliot.