5 Retirement Accounts That Could Be a Better Fit Than a 401(k)
Written by
Kerra Bolton
Edited by
Cory Dudak
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Relying primarily on savings from a 401(k) plan to fund retirement dreams could potentially set retirees up for financial disappointment.
“Diversify or be prepared to downsize your plans,” said Lon Welsh, founder of Ironton Capital. “Alternative accounts like IRAs, SEP IRAs and real estate-backed investments can provide tax advantages, flexibility and stronger long-term returns.”
Welsh went on to explain that finding the right mix will depend on factors like income, risk tolerance and retirement goals, which vary from person to person. GOBanking Rates talked to more financial professionals to explore five retirement accounts that could be a better fit than a 401(k) when it comes to growing your wealth for retirement.
Traditional IRAs
A traditional IRA (short for “individual retirement account”) is a tax-advantaged savings account that allows for tax deductions on contributions. However, withdrawals are taxed as ordinary income.
“Think of this as a personal retirement account, where you can set aside money before taxes, letting it grow until retirement, when you’ll pay taxes on withdrawals,” said Vanessa Welch, Vice President for Financial Insights at retirement services provider Empower.
Welch explained, “You deduct contributions now and pay taxes later in retirement, potentially at a lower tax rate. In 2025, you can contribute up to $7,000 if you’re under 50, or $7,500 if you’re 50+.”
Roth IRAs
Roth IRAs offer the same contribution limits as traditional IRAs, but flip the tax advantage.
“You pay taxes now on the money you put in (with a Roth IRA),” Welsh said. “[When] you retire, all withdrawals, including all of your investment growth, come out completely tax-free in retirement. It’s like paying the tax bill upfront for tax-free income later.”
Christopher Stroup, founder and president of Silicon Beach Financial, said that a traditional IRA suits individuals expecting lower retirement taxes. At the same time, a Roth IRA benefits those anticipating higher, future tax rates.
“Many assume IRAs are inferior due to their lower contribution limits, but their investment flexibility and tax advantages can outweigh this,” Stroup noted. “Some believe Roth IRAs are always better, but that depends on future tax rates.”
SEP IRAs
Small business owners and self-employed individuals with employees could consider a Simplified Employee Pension plan (SEP IRA). Designed for entrepreneurs, it works similarly to a traditional IRA, but with much higher contribution limits.
“Up to $70,000 in 2025, depending on your income,” Welch said. “Think of it as a supercharged IRA for the self-employed.”
Stroup pointed out that in many cases, a SEP IRA has lower fees than an employer-matched plan like a 401(k). “SEP IRAs allow for greater investment flexibility with potentially lower fees,” he said. “They also work well for business owners seeking high contribution limits.”
Health Savings Accounts
Health savings accounts (HSAs) can also serve as a tax-advantaged retirement savings bucket. They allow individuals to set aside money pre-tax to pay for qualified medical expenses now and in the future. They’re often paired with a high-deductible health plan (HDHP).
“HSAs offer a unique, triple tax advantage,” Welch said. “You get tax-deductible contributions, tax-free growth and withdrawals for qualified medical costs. What’s more, after 65, you can use it for anything.”
While HSAs sound like a solid option for those who have chronic illnesses or anticipate health issues during retirement, there are risks. For example, there are penalties for non-medical withdrawals before age 65. Individuals aged 65 and over won’t face penalties, but withdrawals for non-medical expenses will be taxed as regular income. In addition, HSAs are tied to health plans with higher deductibles, which means individuals will pay more out-of-pocket for medical expenses before their insurance kicks in.
“Choosing the right option depends on your tax strategy and income level,” Stroup said. “It may not be realistic if you find yourself having large medical bills.”
Taxable Brokerage Accounts
Taxable brokerage accounts are investment accounts where earnings, such as dividends, interest and capital gains from selling investments, are taxed annually — unlike tax-advantaged accounts like IRAs. In addition, individuals can buy and sell various securities such as stocks, bonds, mutual funds and exchange-traded funds (ETFs).
Stroup said that a taxable brokerage account provides flexibility without contribution limits for high-income earners. However, it is subject to capital gains taxes.
“Taxable accounts are useful for those who’ve maxed out tax-advantaged accounts and want unrestricted withdrawals at any point in the future,” Stroup explained. “Withdrawals can be taxed at the lower capital gains rate if held at least a year.”
More From GOBankingRates
