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Roadblock #3 Over Reliance on a 401(k) Plan

401(k) plans are powerful and should be a piece of your overall financial picture. Some positive features of a 401(k) is your ability to contribute money on a systematic basis, you have investment options at your disposal, you might even pick up a corporate match, and the money grows through time on a tax deferred basis. It’s the over reliance on a 401(k)plan and having this as the majority or sole focus of your retirement strategy,which is not in your best interest.

How do taxes affect your overall financial picture?

If you think about 401(k)’s, it’s the tax advantages that really draw you into that strategy itself,and yet there are some tax drawbacks that you should know about.

  • The taxes that you think you’re saving sit on your balance sheet to be paid. sometime in the future to the IRS. They’re not available for investing or for lifestyle purposes today.

  • All of the money in your 401(k) plan will someday be subject to ordinary income tax rates.

  • You don’t get a chance in your 401(k) plan to offset gains in the market against losses you experience in the market.There’s no tax planning or arbitrage offset that is available to you.

  • Your tax bracket today may be lower today than it will be when you take the money out someday in the future.

Liquidity & Investing

There are also liquidity issues with your 401(k) prior to age 59 ½, and you have to take it out after age 70 ½. These parameters are forced upon you regardless of your life circumstances. Additionally, there are limited investment opportunities with a 401(k) plan and if you have to take money out of your 401(k) plan, you have to put it back on a schedule regardless of what’s going on in your life.


When you do retire and you have a nest egg in a 401(k) or is now enrolled into an IRA, you need to ask yourself these questions:

  • How are you going to distribute that wealth to yourself?

  • How long will it be needed?

  • How long will you actually live into retirement?

The distribution of funds is just as important as the accumulation from a wealth-building standpoint.

It’s OK to wait...

Before saving in your 401(k), make sure that other more important financial considerations have been properly addressed, such as:

  • Protection against what can happen today before you worry about tomorrow.

  • Having an ample level of liquidity that can be called upon if an unforeseen life event occurs.

  • Ensuring a plan for your child’s college education funding.

  • Making sure that someday you can own a house or a new home, and that your money is not totally locked up with taxes and penalties wrapped around it.



Securities products [and advisory services]offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC. The Living Balance Sheet® (LBS) and the LBS Logo are registered service marks of The Guardian Life Insurance Company of America (Guardian), New York, NY. © Copyright2005-2019 Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Pub7341 2019-85504 Exp. 9/21.

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