Is A 401k Worth It Anymore? The Drawbacks Of 401ks And IRAs

Today we’ll look to answer the question on your minds:

“is a 401k worth it anymore?”

Is your money being put to good use by delaying gratification for 30, 40, 50 years?  The answer may surprise you.

Before you read any further, a quick caveat: I have been investing in my 401k for some years now. And I have been impressed with my various 401k managers.

They do a great job and I have been thrilled with my returns. I greatly advocate these savings vehicle for individuals who do not wish to become adept at managing their own investments on a day-to-day basis.  401Ks are great mediums to accomplish long-term savings goals if utilized properly.

The General Rule that I would advocate with 401k investing in particular:

You ALWAYS contribute up to the level of company match.

No questions asked.  If you do this, you are increasing your incoming cash, which is what this journey is all about.  If you don’t, you are leaving free money on the table.  And who doesn’t like free money?!?!

With that being said, let’s get into the heart of the article: are 401ks/IRAs good for the investor?  Is a 401k worth it anymore?

The Negative Aspects of 401K

For investors like myself, who have become well-versed at managing their own portfolios of investments, I see 401ks as dwindling in popularity.  Here are my reasons for becoming disillusioned with 401ks:

  • I cannot access my money until I am 65 1/2 years old.
  • I have to ask someone else’s permission to use my money.
  • The tax-savings aspect is no longer as appealing to me.
  • I will be forced to take distributions when I hit a certain age.
  • The entire goal is to save up enough money and then sell off my assets to pay for living.
  • I believe I can invest just as well or even better than these money managers that I am paying yearly fees.

Let’s take a greater look at each of these reasons:

1. I cannot access my money until I’m 65 ½ years old.  

In looking to withdraw money early from my 401k, I would likely hit with an automatic 10% penalty on top of the taxes that I will have to pay on these originally pre-taxed funds.  This fee is there to dis-incentivize me from tapping into my retirement savings.

This is a good thing for most people as using 401k money to buy goods or services with little-no return on investment (ROI) is a losing proposition.  Examples of items with a low or non-existent ROI:

  • A new boat
  • A new car
  • More house than you need
  • A trip to Fiji

Now these items, while certainly fun, are not a good use of long-term investing capital.

However, if I see an opportunity to utilize this money for a good investment proposition (i.e. good value on a dividend stock), I am unable to capitalize on the opportunity without jumping through various hoops and paying penalties and fees to the government and to my money manager.

2. I have to ask someone else’s permission to use my own money.  

I sent an email the other day to my 401k provider to ask why I could not make a change to one aspect of my 401k and then received an automated email back stating that I would need to call in and speak to a live representative for security reasons.

However, I have yet to make the call as I anticipate being on hold for a decent amount of time, having the person ask me a million verification questions, and most likely being told that I cannot make the change to my plan.

Increasingly I am seeing the money managers are incentivized to keep the ‘kitty pot’ as large as they can to maximize their fees. Any alteration in their overall portfolio balance to the low-side creates less money in their pockets.  I do not like the fact that I cannot use my money even though it is sitting right there, waiting to be put to good use.

3. The Tax Savings Aspect is no longer as appealing to me.  

This is one that I mixed on as the tax savings is appealing to me in the now.  However, increasingly I am seeing that on my pre-tax contributions to my 401k, I am eventually going to be taxed on the proceeds anyways, so why delay the inevitable?

The reasoning to delay taxes is that theoretically my tax rate will be lower in retirement than it will be currently as I will not longer be working.  However, the more I contemplate, the more I wonder if that will be the case.

With government debt levels at all time highs, it can be a sure lock that tax rates will be going up over the long-term.  My tax bracket is currently in the 25-28% range. If I am avoiding taxes at the 25-28% range now for near the same in retirement, it is a no-brainer to be taxed now, especially if I can put the funds to good use.

This could be in the form of using the money for business opportunities or utilizing a Roth IRA (after-tax) instead of a Traditional IRA (before-tax).

4. I will be forced to take distributions at a certain age.

In my 401k, when I hit 70 ½, I will be forced to take out distributions from my overall portfolio.  That means that whether I need the money or not, I will be forced to sell certain assets to pay for my lifestyle.

Not only will this distribution incur a distribution fee of $50, but I will also be selling off my asset base, which as an investor I hate to see.  More on this below.

5. The entire goal is to save up enough money and then sell off my assets to pay for living.

Another element that makes me ask the question “is a 401k worth it anymore” is the fact that I’m ultimately saving to sell.

I can see that the goals of a 401k is noble if not misdirected:

  • Save up enough money to be comfortable in retirement.
  • Retire, then use that money (i.e. sell off stocks) to keep a certain standard of living.

For most investors, this is the way to go.

However, the end goal with this investment strategy is to target a certain value in the 401k.  Once this is achieved and retirement is upon someone, the strategy then switches to selling that portfolio until it ultimately hits $0.

Personally, I can see how this makes a certain amount of sense; there is something Zen about coming into the world with nothing and leaving with nothing.

But as a Financial Freedom seeker, I do not like the idea of building up a large investment and then piecemeal selling it. I would much rather build up an income-generating business or dividend portfolio that kicks off cash on a yearly basis.

6. I can invest just as well or even better than these money managers that I am paying large yearly fees.

This is going to be the kicker for many people. If you do not feel that you can invest as well as money managers or if you do not feel like you want to pursue this path, then by all means a ‘set it and leave it’ 401k approach is for you. Or even if you want to drop the high fees, you can find low cost mutual funds or an Exchange Traded Fund which will ‘track’ the markets for you.

But if you are like me and you enjoy the management of your money and are willing to take complete 100% responsibility for your financial future, then I believe you are ready to do without a 401k money manager and those high fees that come along with it.

Don’t get me wrong. Self-investment is not the path for everyone. And there is no shame in the passive or no management approach of the 401k. In fact, I have done this approach for nearly 10 years while I have studied and prepared myself for the transition to be my own investor.

Only now do I feel ready enough to say “good-bye” to my 401k and “hello” to self-investing in stocks of my own choosing. It is exciting and scary all at once as one wrong investment could spell doom for my portfolio. However, I am at a point where I am willing to be the active investor. And willing to take that bet on my own investment prowess.

Next stop; a dividend portfolio that generates $50,000+ of income per year.  Just check out The Trend.


So is a 401k worth it anymore?

I’m sure you could make arguments both ways.

However, the reasons above are why I no longer wish to invest so heavily in my 401k and would rather use my money for my own investments.

In fact, I am now building my dividend portfolio through my cash position and have the goal of having my total dividend income per year be $50,000.  Stay updated with my Passive Income Indicator page.

If after reading this article you are intrigued about the personal investing of your own funds but are not quite there yet, then I recommend you check out my recommended books on becoming a more astute investor.

I also wrote Simple Budgeting; a Minimalist Guide to Setting Up Your First Budget.  I found that the budgeting process, though unsexy, helped to get me to a place where I am now investing my own funds and living debt-free.  In Simple Budgeting, I take you through my own budgeting process, complete with examples and ideas for improving your own financial affairs.  Get your copy today!

A Question For You

So what do you think?  Are you investing in a 401k or IRA?  Let us know what your strategy is by getting the conversation going below.

Disclaimer: (1) All the information above is not a recommendation for or against any investment vehicle or money management strategy.  It should not be construed as advice and each individual that invests needs to take up any decision with the utmost care and diligence.  Please seek the advice of a competent business professional before making any financial decision.

(2) This website may contain affiliate links.  My goal is to continue to provide you free content and to do so, I may market affiliates from time-to-time.  I would appreciate you supporting the sponsors of as they keep me in business!


  1. GoodAttitudeFood Dude on April 14, 2019 at 1:27 pm

    Nice article! Good information. Kind of makes me glad I decided to keep investing in my IRA in addition to my company managed 401K.

    • Matt Ramey on April 14, 2019 at 2:35 pm

      Thanks GoodattitudeFood Dude! What inspired this post was something I read by Henry Ford where he said “I didn’t even begin saving until I was 40…” It just made me start to think about how we stash all this money away that we cannot touch without severe fees until we’re 65 1/2+ yrs old. How many of us will even make it to that age? Or live a few years beyond that? I just started thinking more and more about how important it is to have money easily accessible. I still get company match on 401k/IRAs where possible, but just seeing the benefits of saving in non-tax retirement vehicles so that money is accessible for business ventures and other opportunities.

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