My 401(k) stinks. What are my options?


Q. I don’t like the choices in my 401(k) and the expenses are high. I know I can do an IRA, but then I can’t save as much. How else can I save the same as in the 401(k) in a tax-deferred investment with lower expenses?
— Investor

A. Although you may not be very excited about the choices and fees in your 401(k) plan, it is hard to beat the tax advantages of 401(k) contributions – getting a deduction against current income and tax-free growth.

Don’t just abandon your plan.

You should at least take advantage of any matching funds offered by your employer, said Chip Wieczorek, a certified financial planner and investment advisor with Tradition Capital Management in Summit.

After that, he said, you can use other vehicles to supplement your 401(k) contribution.

Wieczorek said a healthcare savings account (HSA) one way to save funds for retirement – if you qualify.

“An HSA is a tax-advantaged medical savings account available those enrolled in a high-deductible health plan,” he said. “The funds contributed to an account are not subject to federal income tax and can roll over and accumulate year to year if they are not spent.”

For 2018, the contribution limits are $3,450 for singles and $6,850 for married couples and families, plus there’s a $1,000 catch up for those over 55, he said.

“HSAs are owned by the individual and can be invested like an IRA,” he said. “Withdrawals for medical purposes are tax-free and funds can be withdrawn for any purpose after age 65 and would be subject to income tax.”

Wieczorek said you may also want to consider a Roth IRA.

Because Roth IRAs are not subject to income tax when funds are withdrawn, this is the equivalent of putting more money into a traditional IRA.

“For example, if a client chooses to withdraw $10,000 from a Roth IRA and they are in a 25 percent tax bracket, this is the equivalent of taking $12,500 out of a traditional IRA before taxes,” he said.

Good luck with your savings options.

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