The Unfortunate Truth About Maxing Out Your 401(k)

Core Insights - Investing in a 401(k) is straightforward for employees of companies that offer such plans, with options for automatic enrollment and potential employer matching contributions [1][2] Group 1: Advantages of 401(k) - The 401(k) plan provides ease of investment, tax benefits, and employer matching contributions, making it an attractive option for retirement savings [2] - The contribution limit for a 401(k) is set at $24,500 for 2026, with higher limits for older individuals due to catch-up contributions [4] Group 2: Disadvantages of Maxing Out 401(k) - Attempting to max out a 401(k) can lead to neglecting other tax-advantaged accounts like IRAs, which may offer better investment opportunities [5] - A lack of diversification in retirement plans can be detrimental, as 401(k) plans typically have fewer investment options compared to IRAs, which allow for a broader range of investments [6][7] - Limited flexibility in tax break claims is another downside, as traditional 401(k) contributions are made pre-tax, potentially missing out on the benefits of tax-free withdrawals from Roth accounts [8]