3 pension accounts circling around a 401 (k) | Smart Change: Personal Finance

But if you do not have a 401 (k) to contribute to, do not despair. While 401 (k) plans are a useful savings tool, they have certain drawbacks – namely high fees and limited investment choices. In fact, even you do have a 401 (k), once you have contributed enough to capture your employer match in full, you can instead deposit your remaining money into one of these accounts.

Roth IRAs do not offer immediate tax relief on the money you deposit. What they do offers, however, are tax-free growth on your account and tax-free withdrawals during retirement.

Furthermore, Roth IRAs are the only tax-favored pension scheme that does not impose required minimum distributions (RMDs). RMDs are currently starting at the age of 72 and they are effectively forcing you to spend a large portion of your savings in your life. It may not be a problem if you need your savings to make a living. But if your hope is to leave a lot of money to your heirs, that’s a problem.

With a Roth IRA, you can avoid RMDs. And it gives you more flexibility in what you do with your hard-earned savings.

An HSA is technically not a pension account. Rather, it is a hybrid savings and investment account that lets you set aside money for health expenses in the short term and far away.

But HSA can act as a retirement savings account for two reasons. First, health care can end up being a big expense for you in your senior years. And having dedicated funds set aside for it can ease that burden later in life.

Second, when you turn 65, HSAs effectively convert to traditional retirement savings. What this means is that you will not be penalized for taking payouts for non-medical purposes. Instead, you are simply being taxed on non-health related funds.

Meanwhile, the HSA’s appeal is that it is triple taxed. Contributions go in before tax dollars, and funds invested will grow tax-free. Disbursements are also tax-free when used to cover eligible health care expenses.

Just as an HSA is technically not a pension account, a regular brokerage account also falls into that category. But that does not mean you can not use a regular brokerage account for retirement savings. And there is one great benefit to doing so – flexibility.

With a regular brokerage account, you get no tax benefits. But you will also not be subject to any restrictions.

If you want to retire at age 50 and take withdrawals from that account to cover your expenses, this is your prerogative. With an IRA or 401 (k), you are stuck leaving your money where it is until you turn 59 1/2 (unless you are willing to be hit by expensive sanctions, which you should not be).

Financing a 401 (k) can leave you with a lot of retirement wealth. But if you do not have access to one or are not enthusiastic about your employer’s plan, then it may definitely pay to explore other options.

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