5 Downsides to Maxing Out Your 401(k)
Your employer-sponsored retirement plan -- for most, it's a 401(k) -- is one of your more important tools as a retirement saver. With a 401(k), 403(b), or 457 plan, you have the opportunity to contribute current income and take advantage of tax-deferred growth. If you're fortunate, your employer will also offer a matching contribution up to a certain share of your compensation. There are, however, a number of downsides to contributing the annual maximum ($19,500 in 2021).
More money allocated to your 401(k) is great for the long-term trajectory of your overall net worth, no doubt. But make sure you have enough cash on hand to fund ongoing expenses as well as an emergency fund containing liquid reserves. If you devote too much money to your 401(k), you may be giving up the ability to save for a down payment or to cover unexpected expenses. Although you have the option of taking out a 401(k) loan in the future, this is really not an advisable strategy.
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Source Fool.com
