Major Disadvantages of A 401k Plan
One popular way to save up money for retirement is through a 401k plan. They do have a lot of advantages, but if you want to retire early then this plan is not going to be much help. This is main Disadvantage of the plan, while it may be a great retirement plan if you do not plan to retire until you are in your 60s it stinks for early retirement.
Actually there are 3 different reasons why 401k plans are terrible for anyone who wants to retire early.
1. Maximum Contribution
There is a limit on how much someone can invest into their plan every year. This 401k maximum contribution limit means that you are unable to invest any more then this amount every year.
Saving some money is important, but saving too much is frowned upon by this plan because of the added benefits it offers, such as tax deferred savings.
2.401k Withdrawal Penalty
The next major disadvantage of this plan is that there is a penalty for taking money out before the age of 59 ½. That makes it a little more difficult to retire early because you will have to pay of the panalty any time you pull money out of the accont.
Of course it is not all bad, there are some ways which the early 401k withdrawal penalty can be beneficial to many people. It does help people keep their money into their savings plan and not taking it out early for any reason they can think of. The only problem is that not everyone wants to wait until they are old before they retire, so there are better places to put your money.
3. Manage
Keeping with the same topic a 401k is normally managed like it is not going to be needed for 40 years or so. This is fine if you love your job and would not mind working at it for 40 or 50 years. But there are better ways to make higher returns from the stock market then to buying hundreds and hundreds of stocks just to diversify.
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