Three Warning Signs That Your 401(k) Is Not the Best Option in 2024

Investing in a 401(k) is often considered a wise decision for the future. It may mean making do with little money now, but it will help you fund a more comfortable retirement lifestyle. It might also assist you in obtaining a 401(k) match from your work.

However, there are instances in which storing your funds in one of these accounts might be detrimental. If the following three possibilities apply to you, your 2024 contributions may need reconsidering.

You are losing your employer’s matching contribution, and your 401(k) offers poor investing alternatives. One of the most attractive aspects of these plans is the 401(k) match, which is effectively a bonus your company gives you for saving for retirement.

However, there is no certainty. Some businesses may reduce or eliminate their 401(k) matching contributions during difficult economic times.

You are not required to stop contributing to this account just because you are no longer receiving a business match, but you may want to if the 401(k) lacks investment alternatives that you like. If they are either too risky or too conservative for you or if they demand excessive fees, it may not be the greatest home for your money.

Consider an IRA. The maximum amount you can set aside in 2024 if you are 50 or older is $7,500. However, you can invest in virtually whatever you desire. If you reach this limit, you might switch to a taxable brokerage or health savings account (HSA).

You want Roth savings but can only access a standard 401(k).

There are two taxation methods applicable to retirement funds. Contributions to tax-deferred retirement plans, such as most 401(k)s and standard IRAs, are tax-deductible in the year they are made. However, you must eventually pay taxes on your contributions and withdrawals. On the other hand, Roth accounts offer tax-free withdrawals in retirement but do not offer an upfront tax deduction.

You should consider Roth accounts if you anticipate being in a similar or higher tax bracket in retirement and if your income is not too high to contribute to one. Few companies provide Roth 401(k)s; most Roth-eligible individuals take advantage of Roth IRAs.

Taxes can be daunting, so if you want to get them done now, you may want to start a Roth IRA in 2024 and invest your money there first. Then, if you reach the maximum contribution, you can return to your 401(k) or select a new account.

You have considerable high-interest debt.

Your capacity to pay your bills and invest for long-term goals, such as retirement, may be hindered by high-interest debt. Paying it off is one of the few goals that should precede retirement savings, as you might lose more in annual interest charges than you receive from your retirement assets.

How you repay this loan depends on the amount and type of debt you owe. Credit cards with balance transfers can be used to pay off credit card or payday loan debt, while personal loans can be used to pay off credit card or payday loan debt.

If you carry any of these into 2024, prioritizing debt repayment above 401(k) contributions is a must. If feasible, consider reducing your expenditure in other areas to simplify this task. Then, once you’ve paid off all of your debt, you may decide whether to place your long-term savings in your 401(k) or another retirement account.

Don’t be scared to modify your savings approach during the year. If you gain a new job or your 401(k) changes in some way, this may impact how you save.

If you find a retirement account that serves you better, you can switch to it. Keep note of how much you contributed to each retirement account in 2024 to avoid exceeding the yearly contribution limitations and incurring penalties.