What Occurs If You Maintain Your Entire Retirement Savings in a 401(k)

You might position yourself for a satisfying retirement, one that is full of enjoyable experiences and free of financial concerns, if you are able to start your senior years with a respectable amount of savings. Additionally, you might be inspired to enroll in a 401(k) plan if you have access to one through your place of employment.

What Occurs If You Maintain Your Entire Retirement Savings in a 401(k). (Photo: GOBankingRates)

Typical for employers who sponsor 401(k)s to partially match employee contributions

In an article from The Ascent, the benefit of contributing to a 401(k) is the chance to get free money for retirement, Retirement Savings .It is typical for employers who sponsor 401(k)s to partially match employee contributions. Therefore, if your business will match 3% of your salary and you earn $75,000 per year, contributing $2,250 to your 401(k) will earn you an additional $2,250 from your employer.

Additionally, 401(k)s have significant annual contribution caps. If you’re under 50 years old, you can contribute up to $22,500, and if you’re 50 or older, you can contribute up to $30,000. Although many of us can’t afford to contribute the maximum to our 401(k), it’s wonderful to have the choice.

Even while there are obvious advantages to contributing to a 401(k), there are a few compelling reasons why you might not want to retain all of your retirement funds (Retirement Savings) in one.

1. IRAs provide extra alternatives for investing.

One drawback of 401(k) plans is that they typically exclude you from investing in individual companies and instead restrict you to investment vehicles like index and mutual funds.  However, you can buy individual stocks through IRAs. And for a few reasons, that’s a good thing.

Several of the funds that are frequently provided in 401(k)s can have high fees associated with them, particularly mutual and target date funds. Additionally, if you choose to purchase specific stocks, your portfolio will be completely unique. You can set together an investing portfolio that you believe will help you achieve your unique objectives. Therefore, while it’s a good idea to make enough 401(k) contributions to receive your full employer match, once you’ve done that, you might want to consider investing some of your retirement funds in an IRA- Retirement Savings.

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Few compelling reasons why you might not want to retain all of your retirement funds in one

2. Accounts with taxable brokerages provide more freedom.

There is a disadvantage to IRAs and 401(k)s, despite the great tax incentives that make it advantageous to fund these accounts. You are unable to access either account’s funds until you are 59 1/2 years old. And if you make a withdrawal before that time, you’ll often incur a penalty equal to 10% of the amount you took out of your account.

You could be thinking, “That’s not a problem; I don’t plan to retire until I’m in my mid- or late-sixties.” But what if a downsize forces you out of a job at, say, age 57? What if, at that point, health problems make working part-time your best option?

It’s crucial to be able to access at least a portion of your retirement funds before turning 59 1/2. You’ll have fewer options if you put all of your money in a 401(k).

A better choice could be to contribute to your 401(k) while also saving a little sum in a taxable brokerage account. You’ll be able to get to some of your money whenever you choose, reports from GOBankingRates. 

When a 401(k) plan is offered to you, there are several reasons to take advantage of it. But keeping some of your retirement funds outside of a 401(k) will give you more investing options and the freedom to access your money whenever you need to.

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