The question “what is better than a 401k” has become increasingly common among U.S. workers planning for retirement. While the traditional 401(k) has long been a cornerstone of retirement savings, new rules, tools, and account types have emerged in recent years.
From Roth IRAs and Health Savings Accounts (HSAs) to 529-to-Roth IRA rollovers and expanded contribution limits, many Americans now have more choices than ever before. Depending on your income level, career stage, and goals, some of these new options may offer greater flexibility, tax advantages, or growth potential than a traditional 401(k) alone.
Why Some Savers Are Looking Beyond the 401(k)
The 401(k) remains a powerful retirement vehicle. Contributions reduce taxable income, employers often match contributions, and the investment grows tax-deferred. However, the account has some limitations that are becoming more apparent in today’s financial landscape:
- Required Minimum Distributions (RMDs): Traditional 401(k)s require withdrawals starting at age 73, which can increase taxable income in retirement.
- Limited investment choices: Many 401(k) plans offer a narrow selection of funds with high fees.
- Lack of flexibility: Withdrawals before 59½ often come with penalties, limiting access to funds.
- Future tax uncertainty: Contributions are tax-deferred, meaning you’ll pay taxes later — potentially at higher rates.
As a result, more Americans are turning to other retirement and investment vehicles that offer tax-free growth, greater flexibility, or strategic rollover opportunities.
Roth IRAs: A Tax-Free Growth Powerhouse
One of the most common answers to “what is better than a 401k” is the Roth IRA. This account type offers unique advantages that can complement — or even outperform — a traditional 401(k) for some savers.
Key Advantages of Roth IRAs
- Tax-free withdrawals: Qualified distributions in retirement are completely tax-free.
- No Required Minimum Distributions (RMDs): Unlike 401(k)s, Roth IRAs do not require withdrawals during the original owner’s lifetime.
- Wider investment options: Savers can invest in a broad range of assets, not just employer-selected funds.
- Flexible withdrawal rules: Contributions (not earnings) can be withdrawn at any time without penalties, offering more liquidity.
Contribution Limits in 2025
For 2025, individuals can contribute up to $7,000 annually to a Roth IRA (or $8,000 if age 50+). High earners may face income limits, but recent legislation provides new ways to work around those restrictions through backdoor Roth contributions.
SECURE 2.0 Act: Changing the Retirement Landscape
The SECURE 2.0 Act, passed in late 2022 and rolling out through 2025, has introduced major updates that change how Americans can save for retirement. Many of these changes directly impact whether sticking with just a 401(k) is the smartest move.
Key SECURE 2.0 Provisions Relevant in 2025
- Roth employer matches: Employees can now choose to have employer matching contributions deposited into Roth accounts, rather than traditional pre-tax accounts. This allows for tax-free growth on matched funds, something not possible before.
- Higher catch-up contributions: Workers aged 60–63 can now make even larger catch-up contributions to their plans, including Roth 401(k)s.
- 529-to-Roth IRA rollovers: Unused funds in a 529 education savings account can now be rolled over into a Roth IRA under certain conditions. This is a game-changer for families with leftover college savings.
- Automatic enrollment expansion: Many employers are required to automatically enroll workers in retirement plans, increasing participation rates and encouraging earlier saving.
These updates have blurred the line between traditional 401(k)s, Roth accounts, and other retirement tools — opening the door for more tax-efficient strategies.
529-to-Roth IRA Rollovers: A New Strategic Opportunity
One of the most talked-about retirement developments is the new ability to roll over 529 plan funds into Roth IRAs. This option is ideal for families who funded college savings but ended up with unused balances — for example, if a child received scholarships or didn’t use all the funds.
How It Works
- The 529 account must have been open for at least 15 years.
- Funds can be rolled into a Roth IRA for the beneficiary, up to lifetime limits of $35,000.
- Annual Roth IRA contribution limits apply.
- Rollovers can’t include contributions made in the last five years.
Why It Matters
This change transforms 529 plans into a potential dual-purpose savings tool: first for education, then for retirement. For younger beneficiaries, rolling leftover funds into a Roth IRA early provides decades of tax-free compounding — something that no traditional 401(k) can match.
Health Savings Accounts (HSAs): Triple Tax Advantage
Another tool often cited in conversations about what is better than a 401k is the Health Savings Account (HSA). Originally designed for medical expenses, HSAs have become a powerful retirement savings tool because of their triple tax advantage:
- Contributions are tax-deductible.
- Growth is tax-free.
- Withdrawals for qualified medical expenses are tax-free.
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year to year and can be invested for long-term growth. After age 65, withdrawals can be used for any purpose (not just medical) without penalties — though non-medical withdrawals are taxed like a traditional IRA.
For healthy individuals who can afford to save and invest HSA contributions, this account can outperform a 401(k) in after-tax value.
Brokerage Accounts: Flexibility Over Tax Deferral
While not technically a “retirement account,” taxable brokerage accounts have gained popularity as a complement to or alternative for those asking what is better than a 401k.
Unlike 401(k)s and IRAs, brokerage accounts:
- Have no contribution limits.
- Allow unrestricted withdrawals at any time.
- Offer full investment flexibility, including individual stocks, ETFs, and alternative assets.
- Benefit from capital gains tax rates, which are often lower than ordinary income tax.
The trade-off is no tax deduction for contributions. But for investors seeking maximum control and access, brokerage accounts can fill gaps that 401(k)s can’t.
Combining Strategies: A Modern Retirement Blueprint
Rather than replacing a 401(k) entirely, many Americans are layering multiple accounts to create a tax-efficient, flexible retirement plan. Here’s a simplified example:
| Account Type | Tax Treatment | Best Use |
|---|---|---|
| 401(k) | Tax-deferred, RMDs apply | Maximize employer match; primary long-term growth |
| Roth IRA | Tax-free growth & withdrawals | Hedge against future tax increases; flexibility |
| HSA | Triple tax advantage | Save for medical costs and retirement flexibility |
| Brokerage Account | Taxable, capital gains rates | Flexible investing and early withdrawals |
| 529-to-Roth Rollover | Tax-free Roth funding | Repurpose unused education funds for retirement |
This multi-account strategy provides a diversified tax base, reducing exposure to future tax changes and giving savers more control over withdrawals in retirement.
Rising Interest in Roth Conversions
Another major development is the growing popularity of Roth conversions, where savers transfer money from a traditional 401(k) or IRA into a Roth account. This move requires paying taxes upfront on the converted amount but allows the funds to grow tax-free going forward.
Many financial professionals see 2025 as an advantageous time for Roth conversions due to relatively low tax rates under current law — which are scheduled to increase in 2026 unless Congress acts.
Key Takeaway
The traditional 401(k) remains a strong tool, especially for capturing employer matches. However, recent policy changes and account innovations give U.S. savers more powerful options than ever before. Depending on your situation, a Roth IRA, HSA, 529-to-Roth rollover, or brokerage account — or a combination of several — may offer better flexibility, tax benefits, or growth potential than relying on a 401(k) alone.
Frequently Asked Questions
1. Is a Roth IRA better than a 401(k)?
For some savers, yes. Roth IRAs offer tax-free withdrawals, no RMDs, and more investment options. However, 401(k)s often include employer matching, which is valuable.
2. Can I roll my 401(k) into another type of account?
Yes. Many people roll old 401(k) balances into IRAs for more investment choices. Some also perform Roth conversions for future tax-free growth.
3. What’s new for retirement savings in 2025?
Key changes include higher catch-up contributions, Roth employer matches, expanded automatic enrollment, and 529-to-Roth IRA rollover options under SECURE 2.0.
Disclaimer:-This article provides general information on U.S. retirement accounts and should not be taken as financial, legal, or tax advice. Individuals should consult a licensed financial advisor or tax professional for guidance tailored to their situation.