401k - Putting in more than the company match pros and cons

If you can afford it, why not max it out? Especially now when everything’s on sale

quote:

---

hit the company match and then cut it off and do something else

---

Do this if you have your own investment accounts and like to manage them yourself.

If you want someone else to do the legwork for you, might as well use the 401k.

The con is the taxes due on distribution - many people are not prepared for this when the RMDs start calling.

I did it both ways. Put into 401K beyond company match and had an outside IRA also. The outside IRA had more choices but many 401K accounts have access to index funds.

What I learned was when I retired prior to age 59 1/2 I had access to the 401k funds but not the IRA money. That was only at 59 1/2.

So I looked at the match as a bonus not to be passed up on. But needed the 401k for retirement from 55 to 59 1/2. Without doing some IRS loophole tricks.

quote:

---

So that you can retire comfortably at an earlier age. This is a stupid thread

---

Not as stupid as your response asshat.

There are multiple ways to retire at any age.

There are lots of really smart rich people who are against the 401k. The main reasons are that your money is tied up for so long, you have very few choices on what you're investing in, and you have no idea what your tax burden will be when you retire because the government can change shite at any time.

For me the big one is having money tied up so long. As we're seeing with inflation your money is worth more today than it will be tomorrow. Now if you're just going to let that cash sit in a savings account then you might as well put it in a 401k. But if you're going to do something like start a business or invest in real estate then you may be better off not putting it in the 401k. Keep in mind that by investing in real estate or starting your own business you will be able to take advantage of more tax benefits than what a 401k can offer. If I would have taken the money I put in my 401k over the last 10 years and bought real estate I'd be doing much better right now. But if you're not savvy enough to do that then put it in the 401k.

The other thing is to make sure you're taking advantage of an HSA (if you can) and a roth before you put extra money above the company match % in your 401k

Tell you what I did. I maxed out 401k the 1st day I was eligible to do so and have continued to do so every year since.

As a poster shared, 401k offers option to draw at 55yo (before 59.5) without penalty, something IRAs and Roths don’t allow. That is a very valuable option you may or may not exercise. Nice to have.

I plan to retire when I retire (only income will come from retirement portfolio) so generally confident my post retirement tax rate will be lower than working years tax rates (note: never a given depending on future party in power). Sheltering from taxes now and time value growth vs after tax made “cents” for me.

The Roth is another attractive option,albeit after tax (not sheltered), that has no required minimum distributions. However, you mentioned not being diligent so I recommend you stay with what you are doing. More important to invest in your retirement, even if not perfectly, than not to.

Your future self will thank you. Good luck!

quote:

---

Message

401k - Putting in more than the company match pros and cons by KillTheGophers

The con is the taxes due on distribution - many people are not prepared for this when the RMDs start calling.

---

I hear this loathing of the RMD a lot. It doesn't hit until age 72ish, the 401k savings are so there is income in retirement. Whats wrong with living off the SSI, pension and the 401k RMD and putting any extra aside (brokerage acct). We all know the taxes are deferred, not exempt.

OP- Extra 401k contributions are great if you don't want to manage your investments directly or buy real estate that you manage. A Roth 401k can help avoid the tax issues with the traditional. Either way, don't save so much that you gotta be crazy frugal; enjoy life along the way.

"The other thing is to make sure you're taking advantage of an HSA (if you can)"

Can some people invest their HSA funds? I'm jealous of that. I put a small amount in each year, because I still think I'm indestructible, but my employer is always dumping money in that account. Sometimes I think its a mistake but they keep doing it.. not sure what the rules are on that.

I contribute 20% and company matches 7% into a Roth 401k. I could choose to do lower and invest it elsewhere, but I rather have the advantage of compounding returns on that lump sum of money. Just my two cents.