401(k) Weaknesses

July 21, 2022 / Eric Peterson /

Today’s Prep:

If you have a 401(k), what are some of the downsides? Eric talks through what a 401(k) is best for and when it is better to invest elsewhere.

Equipping Points:

Many of us use a 401(k) as a key retirement investment account. But it’s not perfect. Today on the podcast we talk through some areas of weakness and what you should keep in mind.

For starters, the administrative costs are not cheap. It can be hard to find the costs involved. The good news is, it’s set up automatically, making it out of sight, out of mind. Another thing that seems easy is a target date fund. But what kind of risk or expenses do they carry?

Remember, this is a tool to save money for retirement. You wouldn’t take your retirement dollars to Vegas, so make sure you don’t risk too much in things like crypto. Have someone help you select these accounts and how you should be allocated.

Often, there are not many choices within your 401(k). If you are close to retirement and over 59 and a half, you might want to consider your other options to move your money out. Later on, withdrawals from a 401(k) can be a bit clunky. Anytime you take a distribution from a qualified plan, there’s a mandatory tax withholding. Having it in an IRA might make it easier to access.

0:46 – Let’s talk about the weaknesses of 401(k) accounts.

1:46 – The administrative costs are expensive.

2:52 – Target date funds are a tool.

5:32 – What kind of risk do you have?

7:44 – There are not many choices.

9:53 – Withdrawals are complicated.

Today’s Takeaway: