3 Reasons You Might Hate Your Retired 401 (k) Personal finance
There is, however, an easy way around this problem. You can transfer your funds to an IRA after you retire. This gives you more freedom in how you invest your money and it can help you avoid losing too much of your savings to fees.
2. You will owe taxes on most 401 (k) distributions
You get tax relief the year you make the most 401 (k) contributions, but then owe the government the reduction when you take the money out in retirement. It could save you money if you are in a lower tax bracket than you were while you were working. But if you’re in the same tax bracket or in a higher tax bracket, you might find yourself paying through the nose to use the money you’ve saved for decades.
If you don’t think a traditional 401 (k) makes sense to you from a tax perspective, you can save in a Roth 401 (k), assuming your employer offers one. You pay tax on these contributions up front, but your withdrawals at retirement are tax-free. However, this does not apply to employer matches. These contributions are tax-deferred, just like traditional 401 (k) contributions.
You can try to save in a Roth IRA if your business doesn’t offer Roth 401 (k) s. These accounts are taxed the same way, but Roth IRAs give you a lot more freedom to invest the way you want. The downside is that you can only contribute up to $ 6,000 to an IRA in 2021, or $ 7,000 if you’re 50 or older, compared to $ 19,500 and $ 26,000, respectively, with a 401 (k). However, you can always start saving in your 401 (k) to get your business match, then switch to the Roth IRA until you max out it, then revert to your 401 (k) if needed.