Major Disadvantages Of A 401k
A 401k is an investment plan that helps the majority of people save for the retirement. But this plan does have a few big disadvantages.
1. Contribution Limit
For one thing there is a limit on how much you can put put into it. Now not everyone is going to be able to match the 401k maximum contribution or even come close, but if you are making a lot of money and want to save a good percentage of your money for the future you may not be able to do it.
In addition to these standard rules the company that you work for may have rules set in place which will further limit the amount you can put into your plan. For example if you make $30,000 a year and your employer only allows you to invest 10% of your income into the plan then you will only be able to invest up to $3,000 per year.
If you want to save more you are simply unable to, so this plan can be very limiting if you want to put more money away for the future and are just a great saver.
2. Limited Investing Opportunities
The plans also come with limited investment opportunities. When you invest into your 401k you put money away, but you are not the one who is allowed to invest it. Your money will be managed by someone who is hired to manage money and they may over diversify or play it too safe.
Of course you want safety, but you also want a good return and sometimes there are better ways to get both then by investing in a few hundred different companies in different countries which is what a lot of professional money managers will do. So it can also be very limiting in what it allows you to invest in.
A few plans will allow you to manage your own account if you wish, but many of them only allow you to choose from a list of specific mutual funds. So you technically do not get to manage your money yourself, but simply decide who you want to manage your money for you.
3. Withdrawing
The third disadvantage of investing in 401k retirement plans is that there are certain 401k withdrawal rules which will not allow you take money out early. This can be really hard to deal with if you are investing to retire early.
Those same withdrawing regulations are a good way to stop people from pulling money out too early, there is only 1 problem it assumes you do not want to retire until you are old and grey.
If you want to retire early this may not the best way to do it. Because of that it should not be your only savings plan. Keeping a private account can often times work much better because it gives you the freedom of choosing your investments and lets you decide when to pull out your money.
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