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LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
As you plan for retirement, you may be considering putting your money into a 401k plan. While these plans can be great for saving for your golden years, you need to be careful not to fall into the “401k trap.”
The 401k trap refers to the possibility of becoming too focused on saving for retirement with a 401k plan. You may become too reliant on your 401k, at the expense of other investments and savings vehicles that could be better for you.
One of the disadvantages of a 401k is that the money in your account will be taxed when you withdraw it. This means that you are essentially paying taxes on the money you save twice – once when you earn it, and again when you withdraw it later.
Another potential problem with a 401k is that your employer may limit your investment choices. You may only be able to choose from a handful of funds offered by your employer, some of which may not be the best options for your specific situation.
Additionally, you may face fees and expenses associated with your 401k plan. These could eat into your savings and reduce your overall earnings.
To avoid falling into the 401k trap, it’s important to diversify your investments. Consider other retirement savings options like IRAs, mutual funds, and stocks. Make sure you’re weighing the pros and cons of each of these options when choosing your investments.
You should also ensure that you’re putting money into an emergency fund, as well as saving for other goals like buying a home or paying for your children’s education. Balancing your short-term and long-term financial goals is key.
Ultimately, while 401ks can be great for saving for retirement, it’s important to be aware of their limitations. Make sure you’re diversifying and not becoming too reliant on any single investment vehicle. With smart planning and careful consideration, you can avoid the 401k trap and set yourself up for a successful financial future.
Ok 401K'S are not traps they are retirement accounts you put money in till you reach a certain age they are NOT a savings account that you use to pull money out of for other things. Thats what emergency funds are for. If you live debt free and save you can pay cash for things it really is that simple.
Josh stay on focus. I don't want to hear about your dogs.
We built bridge funds just for this purpose. To get us through until we can tap IRAs at 59.5 We are looking really good and will be pulling the plug on work soon.
Josh, a bit off subject, but is there and extra social security benefit up to $1,200 for military veterans? just saw small YT video on subject and figured your the guy to ask. Keep up the work !
YOUR DOGS ARE SWEET!
With all your certifications you made less than $30k??? I can’t believe it. Is it because you worked in Georgia? In NYC or Westchester County you would make $150k plus easily.
There is always the 72T method folks can use and there is no penalties.
I wouldn’t call it a trap necessarily. It is one of many tools in your retirement plan toolbox. Being uneducated in its pros and cons/limitations/penalties is all on the consumer. Luckily now days with internet and YouTube it is much easier to learn how to use all these tools and structure yourself for the best possible outcome down the road.
This is like the Owen Benjamin of financial advice
I don't plan on touching my 401k money until I have to. I have a small pension and VA disability money coming in and I am totally debt free. I own my home, my car, and everything else I have. My credit cards were paid off and turned into guitar picks. I retired from the Federal Government at 59. I am most likely not taking SS at 62, but it would be foolish in my case to wait until my FRA of 67 to take it as I have Coronary Artery Disease and Atherosclerosis, which killed everyone on my dad's side of the family. I feel fine for the most part but tomorrow is promised to no one, so I try not to take anything for granted. I don't have much in my 401k because I never learned about investing, but I don't plan to use it until I have to.
Only invest in a 401k up to the employer match!
Convert 401k to traditional IRA, then take substantially equal payments.
Pablo rules!!!
Access to capital is the number one problem in my opinion that people have throughout their life. I don't understand why people lock up all this money in a qualified account during the prime of their life. They cannot take advantage of a business or investment opportunity without big taxes and penalties as you found out the hard way Josh. As an insurance guy, I'm obviously biased that the best way to save and store capital efficiently for the long term is in traditional dividend-paying Whole Life Insurance with a mutual life company. There's even a 1990 GAO report to Congress that laments the fact that people have access to built up cash values in their life insurance policies tax free. I'll send this report to whoever wants it. Its right there on page 27 of this 56 page report.
Great stuff. I'm just glad my wife and I have put money away monthly for the forty years we have been married. Traps or no traps we feel good about where we are. Don't over think it.
Fortunately I'm over 55 and 401 k starting to grow more don't know why but happy always a good video
Dag nabbit!
At times I have to watch videos with the sound off and cc turned on. This isn't a problem for me for 99% of videos. But it is very difficult on your videos to do this. Many sentences can not be captioned properly for various reasons and just don't make sense. It would be helpful for those of us who need to be able to do this if the presenter would speak at a normal speed, clearly, concisely, and with minimal digressions.
Just crossed the 401k trap threshold 55.
I wish I had know this 15 years ago I put everything in my 401k nothing in a Roth IRA every cent I take TAX TAX TAX
In fairness to older savers, the Roth IRA was not available until 1998. Habits (401K withholding on autopilot) die hard.
1) So if you started your corporate career before that, you dumped everything into your 401K. (Or a traditional IRA.)
2) Financial “experts” at that time consistently (often inaccurately) advised “your tax rates in retirement are likely to be lower than when you are working, so saving pre-tax is advisable.”
3) Financial planning, specifically Retirement planning, has become far more sophisticated over the past 10-15 years.
4) It took a many years after 1998 for advisors to wake up to the tax trap of 401K’s – specifically to wake up to the opportunity provided by Roth IRAs to diversify your tax picture in retirement.
but you should already know the rules of a 401k when you joined the party. so if you already know the rules, can you actually call it a TRAP?
Don’t forget that 401k accounts offer legal protections as well.
Josh, when computing the maximum income in the 12 percent tax bracket for married filing jointly you add $89,450 plus the standard deduction of $27,770 which totals $117,220. Any in excess of $117,220 is in the 22 percent tax bracket. In 2012 I lost my job and took a lower paid job and needed about $1000 per more to pay my bills. I was 54 and took a $60,000 annuity for 5 years (60 months). By taking payments monthly for 5 years there was no penalty.
Well said! I'm a big proponent of overweighting the Roth and taxable brokerage accounts early in life and then putting a little in a 401K or traditional IRA later in life when your income and tax brackets are highest. Just enough to take chunks out under the standard deduction threshold to spend or Roth-convert as needed during early retirement before taking SS.
Thanks for sharing your office… I feel better knowing I'm not the only one with a dog bed and stuff on the floor! Love your videos Josh!
So Josh, in general terms which are the years you feel are the optimal ones for doing Roth conversions say between 60 and 70 when 99% of your savings are locked up in pre-tax accounts? Love your content and your pooches.