A 401k plan is a popular way to save up money for retirement. There is just 1 major problem with 401k plans, it is that they are geared more for a long term retirement. That is the biggest disadvantage of the retirement plan, it can be really great for people not willing to retire for a long term, but they do not work so well for early retirement planning.
Actually there are 3 different reasons why 401k plans are terrible for anyone who wants to retire early.
1. Maximum Contribution
There is a yearly limit on how much you can invest into this plan. The 401k maximum contribution 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.Early 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 there are ways this 401k withdrawal penalty can be beneficial to many people. It does help people to keep money in their account for their future. 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
Following along the same line, 401k plans are managed with a slow and steady growth over many many years. And this is fine if you don’t plan on retiring until you are in your 60s. But there are better ways to make higher returns from the stock market then to buying hundreds and hundreds of stocks just to diversify.
