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Title: Reconsidering Your Approach: Why You Should Stop Contributing To Your 401(k)!
Introduction:
For decades, contributing to a 401(k) retirement account has been seen as an essential step towards securing a comfortable future. However, this widely accepted belief might not hold up for everyone. It is important to challenge conventional wisdom and reevaluate our individual financial circumstances, as blindly following such advice may not always be in our best interest. In this article, we explore some reasons why individuals should consider stopping contributions to their 401(k) and explore alternative investment options.
1. Limited Investment Choices:
One major drawback of 401(k) plans is the limited investment choices they offer. Employers generally provide a list of mutual funds and company stocks to choose from, which may not align with an individual’s preferred investment strategy. By allocating funds exclusively to a 401(k), individuals miss out on the potential benefits of exploring other investment vehicles, such as individual stocks, real estate, or private equity.
2. Early Access and Flexibility:
Contributions to a 401(k) account come with the burden of early withdrawal penalties and taxes if accessed before the age of 59 ½. This lack of flexibility can be disadvantageous for individuals seeking financial liquidity, especially during emergencies or significant life events. By redirecting contributions to more accessible investment options, individuals can have greater control over their funds and respond promptly to unexpected financial needs.
3. Tax Considerations and Diverse Investment Strategies:
While 401(k) contributions may offer short-term tax benefits, the long-term tax implications can be significant. Upon retirement, when individuals withdraw funds from their 401(k), these amounts are taxed as ordinary income, which can impact their overall retirement income levels. Alternatively, investing in a diverse range of taxable and tax-advantaged accounts, such as an Individual retirement account (IRA), Roth IRA, or brokerage accounts, can provide more control over tax planning and potentially optimize overall tax efficiency.
4. Employer Limitations:
Many employers provide matching contributions as an incentive to participate in their 401(k) plans. However, depending solely on these contributions can inadvertently tie an individual’s fate to their employer’s financial stability. Instances of economic downturns or job loss can result in reduced or eliminated matching contributions, leaving individuals at a disadvantage. Exploring alternative investment options outside of a 401(k) allows diversification and ensures one’s financial future is not tied solely to their employment.
5. Personal Financial Priorities:
Everyone’s financial situation and goals are unique. Contributing to a 401(k) may not always be the highest priority for every individual. Individuals should evaluate their current financial needs, such as paying off high-interest debt, building an emergency fund, or investing in further education, before automatically allocating funds to a retirement account. By addressing immediate financial priorities, individuals can establish a stronger foundation that allows them to invest more meaningfully in their future.
Conclusion:
While contributing to a 401(k) account has long been considered a prudent choice, circumstances may warrant a reassessment of this conventional wisdom. Limited investment options, lack of flexibility, tax considerations, employer limitations, and individual financial priorities should all be taken into account before blindly contributing to a retirement account. By exploring alternative investment options, individuals can regain control over their financial future and shape an investment strategy that aligns with their unique goals, ultimately making a more informed decision about their retirement savings.
The problem I have with the IRAs is how little you can contribute. A lousy 7k a year. Ok so what it’s post tax. It ain’t much. Even a 401k at 30k IMO ain’t enough to get you anywhere. Those programs need to be unlimited for folks making say 200k or less a year.
I think 401 k is a rip off my company do match and then comes the market crashed go figure, I can save more and faster than a 401k.
I have a roth 401k account from Walmart.they are a good to have.
I didn't stop but I did reduce it from 25% down to the minimum to receive the company match.
Josh exactly right. When you look at a standard 401k and the rules associated with it it is really not that great of a retirement program. I would do a Roth 401k versus a standard 401k every time. Secondly, one of the keys to a successful retirement is to have multiple retirement accounts to kick in at various times. I am 57 and just retired. I am drawing my pension and guaranteed annuity first. I will then kick in my 401k at around age 62. At age 67 the annuity drops out. I will be still using my pension and 401k. Hopefully I can get out of my 401k by the time I decide to take SS. As I am withdrawing the 401 a portion will get reinvested into non retirement etf funds. Obviously this is all dependent on health. In the end when I can no longer do the things that I want to because of age and health I will be living on my pension and SS. The non retirement etf funds will be used for other expenditures as needed. This is the plan that I work towards over 41 years. Finally, yes max out any retirement plan if there is a company match it is to your advantage. Thanks for all you do!
I guarantee over 90% of population will be in a lower tax bracket after they retire. Hence, max out your 401k. You will regret.
She needs $100k/yr to live on in retirement? Are you freaking serious???
She needs to move or live within her means.
Move out of the country and live in mexico on $36k/yr from $100k/yr
What about deferred compensation to lower taxable income in the present? Have been doing this for years, but not sure now. Late 50s.
401k, 403b, roach motel for money
I’m planning a near tax free weekend like you’ve preached.
Dont take it out, until you get to retirement age. No penalty, simple concept really.
Thanks Josh, ever since the Ukraine & crisis broke out my 401K has been wiped out! Been saving for years for my retirement. 401K is deceptive if you ask me. We have had our savings dwindle with the cost of living, we are finding it impossible to replace it. My condolences to anyone like retiring in this crisis, it gets tougher by the day.
Perhaps you split your retirement contributions between a Roth and and Traditional IRA.
People handicap themselves by believing that their only options for retirement income are savings and social security. There are so many other options. A good friend of mine has 12 income streams! The more semi-passive income streams you have, the more flexibility you have regarding taxes, when to take SS, and what/when to withdraw from savings. Stop focusing on hitting a savings number, and start focusing on cash flow from multiple income streams.
‘’Courage taught me no matter how bad a crisis gets … any sound investment will eventually pay off."
If your company is matching your contributions or close to it that’s wonderful, you have lost your mind bud
Could Shirley learn to sell covered calls against her deferred IRA portfolio to generate needed monthly income in your opinion?
I live in libtard Oregon they take 9% of my income when I retire I'm moving to Thailand
No way it's on sale match??? They give me 8%….457 I can draw whenever no penalty
Okay first of all I see many mistakes that people make including yourself possibly. So what a young age when you start your retirement account you should also be saving cash and possibly investing in real estate. Point being, you want multiple forms of income when you retire. And you said you need $100,000 a year to live. Well maybe you're living the lifestyle of the Rich and Famous and you're not the Rich and Famous. I live a very comfortable life travel we can getaways fish hike mountain bike kayak on $30,000 a year. And $12,000 of that is taxes and insurance on two homes. People live way beyond their means. In retirement I'll have my 401k, Social Security, rental income and my savings. Approximately $20,000 each which is 80,000 per year, more than I need to live. But I plan on traveling and of course spending more money. No mortgages no debt, something most people carry into retirement.. so don't plan on Social Security alone and don't plan on your retirement account alone. Start at a young age trying to develop other forms of income.
My fav account is a taxable account. So I can get my money out when I want to