For US expats living abroad, retirement planning can be more complex than for domestic residents. While a 401(k) is a common retirement vehicle for those living and working in the United States, many expats either no longer have access to it or face tax and compliance challenges keeping it.
Whether you’re self-employed overseas, working for a foreign employer, or simply looking to diversify your investments across borders, understanding the best alternatives to a 401(k) is key.
This guide explores the best 401k alternatives tailored to the unique needs of US expats, with a focus on compliance, portability, and tax efficiency.
What You Will Learn
- Why expats might need 401(k) alternatives.
- The best alternative retirement accounts and investments for expats.
- Expat-specific rules, limitations, and tax reporting concerns.
- Why consulting a cross-border financial adviser is essential.
What Is a 401(k)?
A 401(k) is an employer-sponsored, defined-contribution retirement plan that offers significant tax benefits for US citizens. Depending on whether your plan is a traditional or Roth type, your 401(k) allows your savings to either grow tax-deferred or be tax-free upon withdrawal.
Aside from your own contributions, which are automatically deducted from your paycheck, your employer may choose to contribute up to a certain amount. Your retirement benefits are then invested in a combination of stocks, bonds, or money market securities offered by your employer’s plan.
Why Would You Need Alternatives to 401(k)?
Some of the most common reasons you may need or prefer an alternative method of saving for your retirement include:
- You are not eligible for 401(k) because your income is not US-sourced.
- Your employer doesn’t provide matching contributions.
- The administrative and maintenance fees of your 401(k) are too high.
- The investment options offered by your employer’s plan are too limited.
- You plan to retire early, and you want more liquidity.
- You are not a permanent resident, and you don’t plan on remaining in the US long-term.
Choosing the right financial vehicle for your retirement benefits is a crucial component of financial planning. If your 401(k) does not align with your wealth management goals, familiarising yourself with the alternatives ensures financial stability and comfort in retirement.
What Are the Best 401(k) Alternatives?
If you’re seeking other options besides 401(k), the key retirement and investment instruments to consider are:
- Solo 401(k).
- Traditional and Roth IRA.
- SEP IRA.
- SIMPLE IRA.
- Country Specific Tax Deferred Accounts.
- Health savings account.
- Indexed universal life (IUL) insurance.
- Real estate investment.
- Investment (brokerage) account.
Solo 401(k)
A solo 401(k), also known as a one-participant 401(k), uni-k, or individual 401(k), is a scheme designed for self-employed individuals or business owners with no employees (other than their spouses). It is suitable for freelancers, small business owners, entrepreneurs, independent consultants, or individuals who have a side job in addition to their main source of income.
This retirement plan allows you to contribute both as an employee and as an employer. However, your total contributions cannot exceed $70,000 for 2025, with catch-up contributions available to those over 50 that equal:
- $7,500 for those who are 50–59.
- $11,500 for those who are 60–63.
Additionally, as an employee, you can choose between the traditional and Roth structure, but your employer contributions must be made with pre-tax dollars and are limited to 25% of your business compensation.
Aside from high contribution caps, solo 401(k) also allows you to invest in a wide range of financial assets, including:
- Cryptocurrency.
- Real estate.
- Private equities.
- Mutual funds.
- Bonds.
- Certificates of deposit.
- Exchange-traded funds.
Note: Once your retirement savings grow above $250,000, you are required to file a Form 5500-EZ with the IRS to provide essential financial information about your plan’s operations.
Traditional and Roth IRA
Individual Retirement Arrangements (IRAs) are highly flexible retirement savings vehicles offering both tax advantages and broad investment access—making them especially valuable for US expats.
Traditional IRA
Like a traditional 401(k), contributions to a traditional IRA are made with pre-tax income, and your savings grow tax-deferred.
Distributions are subject to ordinary income tax, and withdrawals made before age 59½ are typically subject to an additional 10% early withdrawal penalty.
For 2025, you can contribute up to:
- $7,000 if under age 50.
- $8,000 if age 50 or older (catch-up contribution).
Whether your contributions are tax-deductible depends on your income and whether you (or your spouse, if filing jointly) are covered by an employer-sponsored retirement plan:
- Fully deductible: If neither you nor your spouse participates in an employer-sponsored plan.
- Partially deductible: If either you or your spouse is covered and your modified adjusted gross income (MAGI) exceeds IRS thresholds. For example, in 2025, if you are married filing jointly with a MAGI of $146,000 or more, you are not eligible for a deduction.
Roth IRA
A Roth IRA is similar to a traditional IRA but is funded with after-tax dollars, meaning contributions are not tax-deductible. However, qualified withdrawals—including both contributions and investment growth—are entirely tax-free.
Early withdrawals of earnings (before age 59½ and before the account has been open for five years) may be subject to income tax and a 10% penalty. Roth IRAs have the same annual contribution limits as traditional IRAs, but eligibility phases out at higher income levels.
- In 2025, if you are single or married filing separately and your MAGI exceeds $165,000, you cannot contribute directly to a Roth IRA.
High-income earners can still pursue Roth contributions through backdoor Roth IRA strategies, but these involve nuanced tax considerations and should only be implemented under the guidance of an experienced cross-border financial adviser.
SEP IRA
A Simplified Employee Pension IRA (SEP IRA) is a 401(k) alternative tax-advantaged retirement savings plan designed for self-employed individuals, freelancers, and small business owners – including US expats earning foreign income. It is also available to businesses of any size and is valued for its administrative simplicity.
The SEP IRA shares many features with a traditional IRA, including investment flexibility, tax-deferred growth, and taxation upon withdrawal. However, it differs in several important ways:
Contribution limits are significantly higher. For the 2025 tax year, a SEP IRA allows you to contribute up to $70,000 or 25% of eligible compensation, whichever is lower.
Only employers can contribute to a SEP IRA. Employees – including business owners – cannot make personal contributions to their own SEP IRA accounts.
No catch-up contributions are allowed, regardless of age, due to the employer-only funding structure.
Contributions are tax-deductible for the employer and grow tax-deferred until retirement. Distributions taken before age 59½ may be subject to a 10% early withdrawal penalty.
Note: If you operate a business with employees, you must contribute the same percentage of salary to each eligible employee’s SEP IRA as you do to your own. For example, if you contribute 15% of your own compensation, you are required to contribute 15% of each eligible employee’s salary.
SIMPLE IRA
The Savings Incentive Match Plan for Employees (SIMPLE IRA) is a retirement savings plan designed for self-employed individuals and small businesses with 100 or fewer employees.
It offers a simplified way to make tax-deferred contributions toward retirement and is often used by small business owners or sole proprietors who do not qualify for a 401(k).
SIMPLE IRAs share many features with traditional 401(k)s:
- Contributions are made with pre-tax dollars, reducing current taxable income.
- Investment earnings grow tax-deferred until withdrawn.
- Withdrawals are taxed as ordinary income and may be subject to early withdrawal penalties if taken before age 59½.
Contribution Limits for 2025
You can contribute in two capacities—as an employee and as an employer:
- Employee Contributions: Up to $16,500, with an additional $3,500 catch-up if you’re over age 50. Under SECURE Act 2.0, employees aged 60–63 can contribute an additional $5,250.
- Enhanced Limits for Very Small Employers: If the plan includes fewer than 25 employees, the base employee contribution limit increases to $17,600, and the standard catch-up for ages 50–59 rises to $3,850.
Employer Contributions: Employers must either:
- Match employee contributions up to 3% of compensation, or
- Make nonelective contributions equal to 2% of each eligible employee’s salary, regardless of whether the employee contributes.
Note: If you are self-employed, you act as both employer and employee. Even if you opt not to contribute as an employee, you may still be required to make contributions as the employer, depending on the method you’ve chosen.
Country Specific Tax Deferred Accounts
For US expats planning to reside abroad long-term, country-specific tax-deferred investment structures can offer advantages over traditional US-based retirement accounts.
Depending on the applicable tax treaty between the US and your country of residence, certain local vehicles – such as tax-efficient investment bonds, pension wrappers, or retirement-linked savings plans – may provide enhanced benefits such as:
- Tax-deferred growth or capital gains exemptions.
- Reduced or eliminated US withholding tax.
- Favourable local treatment under domestic pension rules.
These structures can improve after-tax returns, reduce cross-border tax friction, and align more closely with local financial planning frameworks.
However, compliance is key: not all foreign pensions or wrappers are treated favourably under US tax law, and some may even trigger punitive IRS reporting or PFIC issues.
At Titan Wealth International, our advisers help US expats evaluate and implement jurisdiction-specific tax deferral strategies that optimise both US and local tax outcomes.
Whether you’re living in Europe, the Middle East, or Asia, we offer tailored planning that integrates local pension rules, tax treaties, and US compliance requirements to support a tax-efficient global retirement plan.
Health Savings Account
If you are enrolled in a high-deductible health plan (HDHP) and you don’t have any other health coverage, you can take advantage of a health savings account (HSA).
An HSA is one of the most tax-efficient savings options as it includes tax-deductible contributions, tax-free growth of your savings through interest, and tax-free withdrawals for qualified medical expenses.
Non-medical distributions are subject to income taxes and a 20% penalty that applies until you turn 65.
The contribution limits for 2025 are:
- $4,300 for individuals
- $8,550 for families
Additionally, those over the age of 55 are eligible for a catch-up contribution of $1,000.
An HSA’s investment options are similar to those of IRAs—you can invest in individual stocks, index funds, real estate ETFs, mutual funds, and other financial securities. Your earnings will also grow tax-free, as long as you use them for medical purposes.
Additionally, your HSA account is portable, which allows you to keep it even if you change employers. However, you cannot contribute to it if you lose the qualifying health insurance plan.
If you’re a US expat living abroad, you can still use your HSA to pay for medical expenses, but you cannot contribute to it if you own a foreign health insurance policy.
Indexed Universal Life (IUL) Insurance
Indexed universal life (IUL) insurance combines lifelong tax-free death benefit protection with the ability to grow savings through tax-deferred cash value accumulation. Unlike traditional life policies, IUL accounts credit interest based on the performance of a selected stock market index—but without direct investment in the market.
IULs include built-in performance safeguards and limits:
| Policy Feature | How It Works |
|---|---|
| Floor rate | A guaranteed minimum return – typically 0% to 1% – protects your cash value if the index performs poorly. |
| Cap rate | Limits the maximum credited growth, often between 8% and 12%. |
| Participation rate | Defines what portion of the index’s return is credited to your account. For example, if the index gains 10% and your participation rate is 80%, you receive 8% (subject to the cap). |
Both cap and participation rates apply, meaning your credited growth is the lesser of:
(Index Return × Participation Rate) or the cap rate.
While there’s no formal IRS contribution limit, high contributions may cause the policy to become a Modified Endowment Contract (MEC), which removes key tax advantages—so careful structuring is essential.
An IUL account may be well suited for high-net-worth US expats who:
- Prefer market-linked growth without direct exposure.
- Seek tax-deferred wealth accumulation.
- Value flexibility in premium contributions.
- Want to pass wealth to heirs free from US inheritance tax.
Real Estate Investment
Real estate is a widely used retirement planning asset that can offer long-term income and capital appreciation. Investors may benefit from rental yields, property value growth, and favourable tax treatment – particularly long-term capital gains rates.
However, direct real estate investing as a 401(k) alternative carries several risks:
| Risk | Explanation |
|---|---|
| Depreciation risk | Properties in less desirable locations – or those in markets that decline – may lose value over time. Economic downturns can also reduce rental demand and market prices. |
| Unexpected costs | Poor tenant selection may lead to costly repairs, unpaid rent, or legal proceedings. Maintenance and vacancy periods can also erode returns. |
| Liquidity constraints | Property sales often take months, making real estate a relatively illiquid investment – not ideal if you need quick access to funds. |
Real Estate Investment Trust (REIT)
Real Estate Investment Trust’s (REITs) offer a more flexible way to gain exposure to real estate without owning physical property.
These investment trusts pool investor funds to acquire and manage income-generating commercial properties such as office buildings, shopping centres, and healthcare facilities.
REITs trade on major stock exchanges, offering high liquidity, transparency, and diversification. They are required by US tax law to distribute at least 90% of taxable income to shareholders, making them an attractive option for income-seeking investors.
Key advantages for US expats:
- No direct management burden.
- Access to institutional-grade assets.
- Potential for consistent dividend income.
Both direct real estate and REIT investments are best suited to long-term investors who already have sufficient liquidity for short- and medium-term needs. For US expats, REITs may offer more flexibility, while direct ownership may appeal to those seeking tangible, location-based control over their assets.
Investment (Brokerage) Account
A brokerage account offers maximum flexibility for retirement savings – there are no contribution caps, required distributions, or penalties for early withdrawal. You can open multiple accounts, select your preferred providers, and invest in a broad range of assets including stocks, ETFs, mutual funds, and bonds.
However, investment returns are not guaranteed. Performance depends on market conditions and your portfolio strategy. Unlike tax-advantaged retirement accounts, brokerage earnings – such as interest, dividends, and capital gains – are generally taxable in the year they are realised.
US expats and nonresident aliens should be aware of potential cross-border tax implications and confirm that their chosen brokerage can support clients with a foreign residence.
Why Work With a Cross-Border Financial Adviser?
Choosing the right 401(k) alternative is not just about investment returns-it’s about compliance, tax efficiency, and future planning. A cross-border financial adviser can:
- Identify which retirement vehicles are compliant with your residency and tax status.
- Help you structure contributions to avoid double taxation.
- Navigate FATCA/FBAR reporting and treaty considerations.
- Optimise retirement income flows across jurisdictions.
Help you initiate a rollover correctly, if it is a part of your strategy, while minimising the risk of penalties.
Key Takeaway
If you’re a US expat and no longer eligible for a 401(k), there are numerous 401(k) alternatives – but each comes with its own tax implications and contribution requirements.
Working with a specialist US expat adviser ensures your retirement strategy is both legally compliant and tax efficient.
At Titan Wealth International, we help US expats choose the most suitable retirement options, avoiding unnecessary penalties and maximising investment growth. Our cross-border specialists will tailor a solution based on your income source, location, and long-term retirement goals.
