4 Out-Of-The-Box Retirement Moves the Wealthy Swear By

Maxing out your 401(k) and IRA has long been the de facto way to save for retirement. But it's not the only tax-smart way to build wealth to carry you through your golden years.

Wealthy savers also tend to focus on everything from investing in income-generating assets to implementing tax reduction strategies to grow their retirement nest eggs.

“When someone has been maxing out their traditional accounts most of their lives, it starts to hit them, ‘I have most of my wealth in the stock market or bond market,’ ” says Nick Hamilton, national manager at Alliant Retirement and Investment Services. “I want to diversify more.”

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That’s not to say they blow off 401(k)s altogether. If a company offers a match, not contributing means you're leaving free money on the table. But it does mean they look for ways to save for retirement outside of the 401(k).

1. They invest in income-generating assets

Having enough cash flow in retirement is the name of the game. It means you don’t have to tap your retirement savings or worry about outliving your money, which is why many people look for investments that generate income.

One area that Hamilton says some of his clients focus on is residential real estate. It provides diversification, can generate income and has the potential to appreciate over time.

“You're not buying a ranch home in some small college town somewhere, you're buying a condo in Park City, Utah, where you can always rent it out,” says Hamilton. The home doesn't have to be just for income. It can be for your enjoyment too. “You can use it for a little bit of both.”

2. They look for tax-free withdrawals in retirement

This is a strategy Hamilton says is reserved for the wealthy, but in the end, enables them to access their money tax-free in retirement.

It works like this: You purchase a variable universal life insurance policy, or VUL. Premiums paid into the policy build the cash value. A portion of that cash value is invested in sub-accounts, which are like mutual funds, and grow on a tax-deferred basis. The remainder goes to the death benefit, which Hamilton says his clients try to keep as low as possible.

Once the cash value grows to a sufficient level and the account holder enters retirement, he or she can take tax-free loans against the cash value portion. Any loans that aren’t paid back reduce the death benefit that goes to heirs, but that’s not the point of this account. The idea is to have tax-free access to income in retirement.

There are no contribution limits with a VUL, unlike a 401(k) or an IRA, which makes it attractive to wealthy individuals.

But there are downsides.

For starters, fees associated with these types of policies can eat into returns. Additionally, your money is subject to market fluctuations. If things go south, the cash value of your account declines, which could lead to a policy lapse.

“A lot of wealthy clients turn to this strategy,” says Hamilton. “You need a significant amount of wealth to ensure you can fund it over several years.”

3. They use their HSA as a "Stealth" IRA

A Health Savings Account (HSA) is more than a way to save for medical expenses; it’s a tax-advantaged powerhouse that the wealthy treat as a secondary retirement account.

That's because contributions are made pre-tax, the balance grows tax-free, and withdrawals are tax-free if used for medical costs.

The kicker: If you pay for medical expenses out-of-pocket now and save every receipt, in retirement, you can reimburse yourself for decades of those old bills all at once. This creates a treasure trove of tax-free cash you can use for anything — from a new boat to a multi-generational family trip — guilt-free.

4. The wealthy look for greener pastures

You're missing out on free money if you don't contribute enough to get your company's full 401(k) match. If you're able, you should always try to invest the maximum amount.

But after that, it's up for debate whether you should take advantage of 401(k) catch-up contributions or seek greener pastures elsewhere.

Wealthy investors don’t stay in money-losing propositions, and if their company’s 401(k) offerings are less than stellar, they will look to invest elsewhere instead of contributing more, and you should too.

You might find better choices investing in an IRA, funding a Health Savings Account (HSA), or opening a taxable brokerage account.

The 401(k) plus approach

The wealthy aren’t blowing off 401(k)s altogether. Nobody wants to leave free money on the table or not take advantage of a tax break. But they recognize that it's not the be-all and end-all. If opportunity comes knocking, they're taking advantage of it.

Whether they're investing in real estate or buying insurance to access tax-free withdrawals in retirement, they know there are additional ways to build a retirement nest egg beyond traditional retirement accounts.

Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.