By Anna-Louise Jackson/NerdWallet via time.com/money/ Article
3 Reasons You Might Not Want to Max Out Your 401(k) After All
“1. Non-retirement goals
… Jeff Weber, a certified financial planner … ‘Most people think that putting extra money aside for retirement is the best policy,’ he says. ‘But we like to take a look at the big picture and make sure they’re covered in other areas, too.’ …
- Do you have any high-interest credit card debt? If so, pay that off ASAP.
- Have you built up an emergency fund with three to six months of living expenses?
- Do you have adequate health insurance?
- If you’re married or have children, do you have adequate life insurance?
- Do you have adequate disability insurance in case you’re out of work for six months or more because of an injury or ailment?
- Do you have a basic will or trust established?
- If you’re close to retirement age, do you have long-term care insurance?
Generally, Weber wants his clients to have these goals in place before maxing out a retirement plan. But if they don’t, he still urges clients to contribute the minimum to get their employer’s match … if it’s offered. …
2. Today vs. tomorrow
… A about half of Americans are saving less than 5% of their income and only 35% of employees are on track to meet their retirement goals. … the knee-jerk reaction for many advisers is to encourage people to max out savings — and even max out a 401(k), says Rick Irace, chief operating officer at Ascensus. ‘But that’s not realistic for everyone.’ …
The company-match perk, which is fairly common among firms that offer retirement plans, means your employer will match your contributions up to a certain percentage. While the amount varies, it’s free money for those who contribute to their plans.
3. Other investment options
… When choosing between the traditional and Roth variety of an IRA or 401(k), the difference comes down to when you’ll be taxed. In traditional accounts, contributions are pretax and distributions in retirement are taxed; with Roth accounts, contributions are made after taxes but retirement distributions are tax-free. (Learn more about traditional and Roth IRAs.)”