The 401k Backlash

In the last year or so, I have seen a lot of articles bashing the 401k.

This is interesting because the 401k seemed to be sacrosanct. All through the 1990's and into the 2000's, financial planners and the financial media drilled into our heads about how important it was to save for retirement, and a 401k was great because you "paid yourself first", got the power of tax deferral and, perhaps, got a company match.

But, many 401k plans have drawbacks - the main ones being that the fund choices tend to be poor. This is because the funds don't have to sell themselves to the individual investors. Instead, they just have to sell themselves to the investors' employers.

For the employers, their money and retirement are not on the line, and administering the company's 401k plan is not a core function of the business.

Personally, I think that you should only use a 401k plan if your company matches - and then only put in enough to get the maximum match.

You are better off putting the rest of your investments into Roth IRAs and/or taxable accounts where you can get long term capital gains - which can be canceled through capital loss harvesting (which is explained on page 28 of my book Stock Trading Riches).