You always have the option to opt out and stop contributing to your 401(k). However, see below for some things to consider before making the change:
- Unlike normal savings or investment accounts, you pay taxes on the money you’re saving and on any earnings gained. In contrast, your pre-tax 401(k) contributions are taken from your paycheck before taxes, and any earnings will grow tax-deferred.
- With other investment accounts, you must pay taxes on any capital gains you earn for that year. With a 401(k), you won’t have to pay taxes on those gains until you receive distributions during retirement.
- 401(k) contributions can reduce your taxable income and lower the amount of income taxes you pay in the year you contribute to the plan.
- Your 401(k) account assets are protected in the event of bankruptcy or judgment creditors.
- 401(k)’s have higher contribution limits than IRAs.
- Your employer may offer an employer match or profit sharing contributions that won’t be taxed until you distribute.