The Expert Podcast

• What is a 401(k)?
  • A tax-advantaged retirement savings plan.
  • Contributions are deducted from your paycheck pre-tax.
  • Limited liquidity: Withdrawals before retirement incur taxes and penalties.
• Disadvantages of a 401(k):
  • Liquidity Constraints:
    • Money is locked until retirement, with limited hardship withdrawals and loans available.
    • Early withdrawals incur penalties and tax liabilities.
  • Fees and Expenses:
    • Managed by financial institutions, which often charge annual or management fees.
  • Limited Investment Options:
    • Restricted to a pre-selected list of mutual funds.
    • Limited flexibility to pick individual stocks or diverse assets.
  • Portability Challenges:
    • Switching jobs requires rolling over your 401(k) to a new employer plan or IRA.
• Advantages of a 401(k):
  • Employer Match:
    • Some employers match a percentage of your contributions (e.g., 3% match = free money).
    • Significant incentive to participate if offered.
  • Catch-Up Contributions:
    • 2023 updates allow for additional contributions to maximize your savings.
• Alternatives to a 401(k):
  • Individual Retirement Accounts (IRAs):
    • Roth IRA: Post-tax contributions with tax-free withdrawals in retirement.
    • SEP IRA: Designed for self-employed individuals.
  • Brokerage Accounts:
    • More investment options but lack tax advantages.
• Key Considerations:
  • Understand penalties, fees, and tax implications for early withdrawals.
  • Evaluate whether your employer offers a match.
  • Consider diversification with alternative retirement savings options.