For most financial planners, any mention of opting out of your employer 401k plan is tantamount to blasphemy. While it’s true that they are one of the best retirement savings vehicles available, it may not always be in your best interest to max out your contributions if you consider all of the key factors that apply.
No matching contribution: If your plan doesn’t include a matching contribution by your employer, you may actually be better off contributing to a Roth IRA if you’re eligible. Opening an IRA through a discount broker can give you many more investment options and, generally, the fees are lower. Also, you have more flexibility with a Roth IRA for accessing your funds for buying a home or paying for college.
Limited investment choices/high expenses: Many 401k plans have a limited number of investment choices, which over time won’t allow you to diversify the way you might need based on your objectives and risk tolerance. Also, many 401k plans are notorious for high expenses which can impede your accumulation.
Important: While it may make sense to opt out of your 401k, you shouldn’t opt out of a committed retirement savings plan. If your employer provides a matching contribution, you may want to consider contributing enough to earn the match and then invest the balance in an IRA.