Maxing out your 401k – not the best idea for you

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Most people save for retirement in 401Ks, 403Bs, or 457 plans. That’s because that is what most employers make available to employees and since most Americans work for a company, that is what most people have.

If you are one of the lucky few that have an employer matching program, then it can be a great deal. However, there are a number of downsides to contributing the maximum amount, which is $19,500 in 2021.

Let’s touch on those…


Look at your latest statement balance. Now, subtract 25% to 30% [or more] from that and that is actually how much you have that belongs to you, depending on your tax bracket when you retire.

Tax-deferral, which is a major selling point for 401Ks and IRAs, is only a good deal for you if you are going to be in a lower tax bracket when you retire. Are you planning on making more or less money the closer you get to retirement? 

Most people have a goal of maintaining their standard of living in retirement so at the very least your taxes will stay the same.

If you are getting a match at work and you are contributing more than what is matched, then you are just compounding your tax problem at retirement.

You may want to consider an option that gives you tax-free income in retirement, so the future unknown tax rates don’t alter your retirement. 


Money allocated to these plans is locked up for the long term. Having that kind of money is important but it will limit the amount of money you have on hand for ongoing expenses, emergencies, or even if you decide to pull the trigger on your dream of getting a boat or some land.

You can still set money aside for your retirement without giving up access to it, giving you more options.


So, you will have less cash on hand. We just established that. But if you need to get to your money before you are 59 ½ then you will have to pay a penalty in addition to the taxes at that time.

The 10% penalty would not cripple you but if you have to access money when your accounts are down, the penalty on top of the loss and the taxes will have a big impact.

If you look on the other side of this, you are required to start taking the money by age 72 even if you don’t need it. If you don’t take your money by then there is another penalty.

These kinds of things can be avoided with the right kind of financial and income planning.


Some, but not all, employer-sponsored plans come with high very high fees. These can come in several different ways and sadly most people are not aware of them. Oftentimes these fees are hidden. Actually, they are all disclosed in the prospectus. That’s a long document you get every year that very few people read.

In addition to taxes, fees could result in tens of thousands of dollars less a year in retirement. That adds up to a substantial loss of income.

Again, this is something that can be addressed with proper planning.


If you have no employer match, then you are the only one saving for retirement in a 100% taxable vehicle with potentially high fees that will negatively impact your retirement income.

If you have no employer match you should consider looking at outside options. You can set up your own retirement program that you can keep no matter where you are employed, and you may have a better understanding of how everything works because you will have a specific advisor to work with.

That advisor should have access to many different options and listen to your goals and help you construct a plan that uses the money you have in the best way possible.

ABOUT THE AUTHOR: Matt Vysoky is an Investment Advisor Representative and Insurance Advisor at Both Hands Financial Group. When it comes to planning for peoples' retirement, Matt, and the entire team at Both Hands FG, understand the various options available to everyone that can help people achieve the kind of standard of living in retirement they desire without making any compromises. Matt recently helped one of his clients increase their retirement income by 92% a year by showing them an option that will not only increase their income in retirement but also will decrease their taxes and will not risk their money. In addition to helping people use unique strategies for retirement, Matt is active in his church, busy with his wife and three children, often working out or working in his woodshop.