401k or investment account?
Hi all, I’ve had this question for a while.
I’m 24 and will complete 2 years at my first job soon. The salary is great (first year and a half 90k, half of second year at almost 100k) but my dad keeps trying to hammer home to me how important it is to put money away in my Roth 401k, so I do. In less than two years, I’ve put in about $43k and have also made about 10k on those investments.
The thing is, I don’t have that much money in my checking account. Because I’ve been putting away about 35% of each paycheck, my balance in my checking account pretty much doesn’t change with my expenses. I’ve been at about $10k in my checking account for almost a year it feels like.
I can see how my money is growing in my 401k and that’s great, but I can’t access it till I’m 65? In a few years I’d have enough in there to put a down payment on a good house in my area, but then would have to “borrow” money from myself?
So my question is, why do people use 401ks and not just regular investment accounts? It seems like an easier way to get liquid quicker.
I think also part of the reason I’m asking this is because my company’s matching is so bad (like maybe 2%?). But my point still kind of stands, why is my money in an account I can’t touch till I’m in my 60s? With the way the world is going, I kinda want that money sooner rather than later because who knows if there will be a later.
Sorry for this silly question, but I was just wondering.
Navigating your financial future can be challenging, especially when deciding between a 401k and an investment account. A 401k provides tax advantages and employer matching contributions, making it an attractive option for long-term savings. With a Roth 401k, you can grow your investments tax-free until retirement, but accessing those funds early can be restricted. It’s essential to weigh the benefits of immediate liquidity against the potential long-term gains of retirement accounts. On the other hand, investment accounts offer more flexibility with withdrawals, giving you quicker access to your money. While these accounts may not have the same tax advantages, they can be beneficial for those looking to invest in stocks, bonds, or mutual funds without the constraints of a retirement plan. Many young professionals find themselves questioning whether to prioritize their 401k contributions when they are eager to save for short-term goals, like a home down payment. Ultimately, understanding your financial goals, risk tolerance, and timeline is crucial when deciding between these options. Consider speaking with a financial advisor to help you make an informed decision tailored to your situation.
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