The 401(k) Argument

Last week my husband Robert wrote an article for Yahoo!Finance about 401(k)s that hit a nerve with many readers, generating over 800 comments. The heated responses to this topic shows just how entrenched most people are in the old ways of thinking – especially since those old ways of thinking are still being peddled by many of the financial “experts” on TV.

Mainstream financial experts continue to sing the praises of 401(k)s despite the massive losses so many people - many of them close to retirement - have experienced in their 401(k)s. According to these experts, 401(k)s still make sense because of the "free" employer matching funds. To most people this argument makes sense - after all, why would you turn down free money?

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What they don't realize that in return for the “free” employer matching funds that go into a 401(k) they are giving up almost all control over their investments and putting themselves at the mercy of a volatile stock market, paying much of their gains to management fees, and paying taxes on “gains” even when the value of their fund decreases. Even in a self-directed IRA - which gives you more options than a 401(k) - there are still serious limitations, such as the fact that you can't benefit today from your investments or take the money out of the IRA before you are 59 1/2 years old without paying taxes PLUS a 10% penalty.

Sadly, this financial crisis has shown us what can happen when people with little financial education park their money in 401(k)s - they can lose their life savings in the blink of an eye. Don't let this happen to you! Learn how to utilize investments where you can exercise control and build a prosperous life for yourself and your family today.

Unsure about what you should do with your 401(k)? Read an article I wrote for Women Entrepreneur where I answered questions from women dealing with this same issue. Read “Should You Reconsider Your 401(k)?”

Original publish date: December 10, 2009