The Unfortunate Truth About Maxing Out Your 401(k)

Motley Fool04-19

401(k) accounts have very generous contribution limits, much higher than those of IRAs. But 401(k)s also have much more limited investment options than IRAs and regular brokerage accounts. ...

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Some of them might surprise you.","collect":0,"end_time":0,"defaultTopTitle":"fool.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0308772762.SGD":"Blackrock Global Allocation A2 SGD-H","LU1280957306.USD":"THREADNEEDLE (LUX) US CONTRARIAN CORE EQUITIES \"AUP\" (USD) INC","IE00BMPRXR70.SGD":"Neuberger Berman 5G Connectivity A Acc SGD-H","GOOG":"谷歌","LU0234572021.USD":"高盛美国核心股票组合Acc","IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","SQQQ":"纳指三倍做空ETF","GOOGL":"谷歌A","LU0353189763.USD":"ALLSPRING  US ALL CAP GROWTH FUND \"I\" (USD) ACC","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","LU0061474705.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN \"AU\" (USD) ACC","LU0130102774.USD":"Natixis Harris Associates US Equity RA USD","LU1814569148.SGD":"WELLINGTON GLOBAL QUALITY GROWTH \"D\" (SGDHDG) ACC","AMZN":"亚马逊","LU0289960550.SGD":"AB FCP I - GLOBAL EQUITY BLEND PORTFOLIO 'A' (SGD) ACC","LU0965509283.SGD":"AB LOW VOLATILITY EQUITY PORTFOLIO \"AD\" (SGDHDG) INC","IE00B1BXHZ80.USD":"Legg Mason ClearBridge - US Appreciation A Acc USD","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","LU0061475181.USD":"THREADNEEDLE (LUX) AMERICAN \"AU\" (USD) ACC","LU0276348264.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN\"AUP\" (USD) INC","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","QID":"纳指两倍做空ETF","BK4532":"文艺复兴科技持仓","IE00B7KXQ091.USD":"Janus Henderson Balanced A Inc USD","LU0029864427.USD":"TEMPLETON GLOBAL \"A\" (USD) INC","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","LU1571399168.USD":"ALLSPRING GLOBAL LONG/SHORT EQUITY \"IP\" (USD) ACC",".IXIC":"NASDAQ Composite","BK4534":"瑞士信贷持仓","IE00BFSS7M15.SGD":"Janus Henderson Balanced A Acc SGD-H","BK4533":"AQR资本管理(全球第二大对冲基金)","TQQQ":"纳指三倍做多ETF","LU0128525929.USD":"TEMPLETON GLOBAL \"A\" (USD) ACC","LU0238689110.USD":"贝莱德环球动力股票基金","LU0109391861.USD":"富兰克林美国机遇基金A Acc","LU0234570918.USD":"高盛全球核心股票组合Acc Close","IE00B19Z9505.USD":"美盛-美国大盘成长股A Acc","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","PSQ":"纳指反向ETF","LU0072462426.USD":"贝莱德全球配置 A2","QLD":"纳指两倍做多ETF","QQQ":"纳指100ETF","BK4220":"综合零售","LU0082616367.USD":"摩根大通美国科技A（dist）","NVDA":"英伟达","BK4527":"明星科技股","LU0080751232.USD":"富达环球多元动力基金A","LU0061474960.USD":"天利环球焦点基金AU Acc"},"translate_title":"最大限度使用401(k)计划的不幸真相","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMZN":1,"NVDA":1,"GOOG":1,"GOOGL":1,".IXIC":0.78,"TQQQ":0.6,"PSQ":0.6,"QID":0.6,"QLD":0.6,"QQQ":0.6,"SQQQ":0.6,"MNQmain":0.6,"NQmain":0.6},"content_text":"401(k) accounts have very generous contribution limits, much higher than those of IRAs. \n\n\n\n\n\n\n\nBut 401(k)s also have much more limited investment options than IRAs and regular brokerage accounts.\n\n\n\n\n\n\n\nYou might want to spread your saved dollars across several different retirement savings accounts. \n\nMillions of us have 401(k) accounts, sponsored by our employers or former employers. And hundreds of thousands, if not millions, of us actually have accounts worth $1 million or more. That's not the norm -- millionaire accounts only made up about 1.8% of 401(k) accounts administered by Fidelity, for example. But Fidelity's recent 422,000 millionaire 401(k) accounts do show us how powerful a retirement saving tool 401(k)s can be.Despite that, though, there's an unfortunate truth about 401(k) accounts: They may not be your best path to growing your wealth for retirement.Image source: Getty Images.Upsides and downsides to 401(k) accounts401(k) accounts, which debuted in 1980, have some fantastic features -- but they're not perfect. Here are some of their pros and cons.Advantages of 401(k) accounts:They sport hefty contribution limits. In 2024, the contribution limit is $23,000 (up from $22,500 for 2023), plus an additional $7,500 \"catch-up\" contribution for those 50 or older. (The IRA contribution limit, meanwhile, is $7,000, plus a $1,000 catch-up contribution.)Your account gets automatically funded from every paycheck, once you set it up. That can be handy for those who might otherwise put off saving for retirement or simply forget to do so.Many employers offer matching contributions, chipping in money into your account along with you. (It's usually smart to contribute enough to grab the maximum match, as it's free money.)Money in your 401(k) account grows in a tax-advantaged way -- either by postponing taxation via a traditional 401(k) or by avoiding it altogether via a Roth 401(k).Drawbacks of 401(k) accounts:A 401(k) account alone may not help you save as much as you need for retirement.Not everyone has access to a 401(k) plan at their workplace. (They may be able to take advantage of retirement accounts for the self-employed, and they can probably save via IRAs, too.)You're limited in where you can invest your 401(k) dollars. You typically have only a large or small handful of funds to choose from. (If a low-fee, broad-market index fund, such as one tracking the S&P 500, is one of your options, that can work quite well.)Some 401(k) accounts charge relatively steep fees, which can eat into your returns. It's always smart to find out what kind of fees you'll face.Funds in your 401(k) can't be withdrawn any time you'd like without triggering taxes and penalties. To avoid penalties, you'll generally have to wait until age 59 1/2 -- and unless your money is in a Roth 401(k) with tax-free withdrawals, your withdrawals will count as taxable income.Once you approach or reach age 73, you'll be required to start taking required minimum distributions (RMDs) annually from a traditional 401(k) -- and a traditional IRA, as well.If your 401(k) is the traditional (not Roth) kind, your withdrawals will be taxed -- which could be bad news if you're in a higher tax bracket in retirement than you were when you made your contribution.Why you might not want to max out your 401(k)Here's a common scenario: You earn a certain sum, and the amount you can contribute to your retirement account(s) is, naturally, limited. Let's assume that you're able to sock away a hefty $25,000 each year.You can save that $25,000 for retirement in different ways. For example, you can park up to $7,000 or $8,000 in an IRA, you can add some or all of that $25,000 to your regular, taxable brokerage account, you can send some or all of it to one or more mutual funds (either directly, via the fund company or through your brokerage account), and/or you can contribute up to $23,000 (or $30,500 if you're 50 or older) to your 401(k). See? Lots of possibilities.So what should you do? Well, there are plenty of reasonable and effective choices, but keep these thoughts in mind:If your 401(k) plan doesn't offer a low-fee, broad-market index fund or whatever kind of investment you want, consider not maxing out your contributions to it. (You might also ask the plan administrator to consider adding the investment options you seek.)Within an IRA account, you can invest in just about any mutual fund out there, and just about any stock(s). If you have great confidence in your ability to invest your money effectively -- perhaps by investing in growth stocks such as Amazon.com (NASDAQ: AMZN), Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), or Nvidia (NASDAQ: NVDA) -- you may be able to do better within an IRA or a regular, taxable brokerage account than in a 401(k).If you think you might need or want to withdraw some money before retirement, remember that you could face an early withdrawal penalty doing so from a 401(k) plan or an IRA -- but not from a regular, taxable brokerage account.Above all, remember that you can divide your $25,000, perhaps maxing out your IRA account first and then distributing the remainder across your 401(k) and one or more other accounts.It's worth taking some time to determine how you want to invest your retirement savings each year. You might also read up on more 401(k) mistakes to avoid, in order to get the most out of your retirement savings accounts.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428781635"}