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3 Drawbacks of Using Only a 401(k) for Retirement


KXLY
March 11, 2021 6:20 AM
newsfeedback@fool.com (Ryan Downie)
Posted:
Updated:
March 13, 2021 4:36 AM
401(k) accounts are a great tool for savers who want to supplement Social Security income in retirement. It’s a great idea to take advantage of the employer matches and automated savings provided by this account. However, you might want to consider a more balanced approach if you’re contributing above and beyond the employer match.
Everyone’s situation is different, but there are definitely some situations where the 401(k) isn’t the only place you should be parking your retirement savings.
1. Taxes in retirement
People love the idea of avoiding taxation today, and that’s one of the qualities that make 401(k) accounts so attractive. Qualifying contributions are made and grow on a tax-deferred basis. That’s great, but you have an embedded liability that grows over time. Withdrawals will be taxed as ordinary income in retire ....

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