How to Build a Retirement Plan Beyond Your 401(K)

When most people think about retirement planning, they think of employer-sponsored retirement plans. A 401(k), 457, 403(b), and similar employer plans are great ways to save money for when you stop working. But they aren’t the only tools available. Here are three other options to consider when building a retirement plan beyond your 401(k).

Open an individual retirement account

Anyone with earned income is eligible to open an individual retirement account (IRA). These retirement plan options have some requirements similar to a 401(k):

• IRAs have contribution limits. In 2022, the IRA limit is $6,000, with an optional $1,000 catch-up contribution for those ages 50 and
• IRAs have Roth and traditional options. A traditional IRA uses pre-tax dollars, while a Roth IRA is funded by after-tax dollars. That means a traditional IRA will be taxed when you withdraw the money in retirement, known as taking distributions. But a Roth IRA has the benefits of tax-free growth and tax-free withdrawals if you wait until age 59 ½, as long as you have had the account for more than 5 years
• Traditional IRAs have mandatory withdrawals after age 72. As with other retirement plans, traditional pre-tax IRAs must have a minimum amount withdrawn once you reach age 72. On the other hand, Roth IRAs have no required minimum distributions until after the account owner’s death.

A benefit of using an IRA for retirement planning is that it’s not tied to an employer. That means you won’t need to worry about transferring the account when you leave a job.

Consider a life insurance policy

Term life insurance, which is designed to pay a death benefit if you pass away during the policy’s term, can be a smart financial move to ensure loved ones are cared for if you pass unexpectedly. But a whole life insurance policy offers a death benefit plus the ability to accrue cash value.

The cash value component of a whole life insurance policy is something you can use while you’re still alive. Once you build up sufficient cash value after years of premium payments, you can take a loan, withdraw some of the cash without returning it, or even surrender the policy to remove what you have. Of course, any withdrawals or loans will reduce the death benefit. You’re able to withdraw the basis you paid into a policy tax free, which can help you manage your tax burden in retirement.

Invest in a taxable brokerage account

Once you exhaust the tax-favored savings options, the next place you may want to look is a taxable brokerage account. In this account, you’ll use after-tax dollars to invest in the markets. The best part about using a taxable brokerage account is you can choose your investment options, whether that’s individual company stock, bonds, ETFs, mutual funds, or otherwise.

You’ll also have the benefit of avoiding required minimum distributions that are necessary with retirement accounts. But keep in mind market investments have risk, including the potential to lose money invested and any realized gains you accrue will be subject to taxation as either short-term or long-term capital gains. If you’re not sure which investments to choose or simply don’t want to do the heavy lifting, a financial professional can assist in building a portfolio.

The bottom line

Savings in an employer-sponsored retirement plan are a great start. But it’s important to think beyond your 401(k) too. IRAs, life insurance, and taxable brokerage accounts are all options to look into when creating your retirement plan. Using these tools to create a diversified retirement picture is one of the best ways to ensure you’ll be able to retire when you want and have financial support as long as you live.