401k alternatives

Episode 25 Are you funding your 401k the right way?

Often times people will think they are maxing out their 401(k) when they are really just putting in the amount needed to get your company match.   Other times people will put in the full IRS maximum ($22,500 in 2023) but they are not getting a match after a certain amount, so that additional contribution - while good - may not be as efficient as contributing to an IRA or Roth IRA once you have hit the most your company will match.

In other words if you plan on contributing $15,000 to retirement accounts but your company only matches the first $6,000 it likely makes sense to contribute the next $6,000 of your money to an IRA or Roth IRA so you have more control over your investments.  Then you can go back and put the last $3,000 into your company plan again.

Disclaimer - Information provided in this podcast is not tax, legal or investment advice.  Every person's circumstances are different.  If you would like to discuss your personal circumstances, feel free to reach out to Red Barn Financial.

In this episode of the Red Barn Financial Podcast I explore the alternatives to investing in your 401(k) or other work plan.  While your 401(k) plan is a great investment option when the company offers you a match, it may not be the best place to invest money that isn't being matched. 

There are two reasons why you may want to invest money that isn't matched in your company plan outside the company plan:

1.  It's quite likely that your company plan fees and investment options are costly.  For example if you are paying 2% in fees, that means your investments need to go up 10% for you to net 8%.  What are you getting for those fees?

2. You are limited to what the company chose as investment options for you.  If they picked 10 funds, you can't invest in individual stocks, other ETFs or mutual funds that you like and might be less costly for the same investment.

I share some alternatives like investing in a Roth IRA or other deferred compensation plan as well as looking at a brokerage account as another place that you can store up as much money as you choose to save.  Then there are life insurance products and if you own a business you can choose a deferred compensaiton plan.