The 401(k) is one of the simplest ways to save for retirement. Once you set up your contribution amount and your investment picks, the process is mostly automated. You’re essentially building wealth without even thinking about it. Plus, you might get some free employer match contributions to speed up your progress.
But even with those perks, you’ll want to stash some cash for retirement outside of your 401(k), too. You’ll agree once you take a look at these four drawbacks of relying solely on your 401(k) for retirement.
The distributions you take from your 401(k) in retirement are taxed as regular income. This is how you repay the government for the tax deductions you received on your contributions and the tax deferrals on your earnings. It’s a reasonable trade-off, as long as you expect to be in a lower income tax bracket after you leave the workforce.