Personal Finance

I'm 35 with a $775k in my 401k - I should keep contributing to the 401k or put extra money in a brokerage account?

Joey Frenette

Published: December 9, 2024 6:32 am

If you’re miles ahead of the 401(k) retirement savings journey, you may have flexibility as to what you do with incoming funds. Undoubtedly, $775,000 is a significant sum saved up for retirement and though it’s typically always a good idea to keep the contributions to fast-track your retirement fund, I’d argue that it may also make sense to allocate funds elsewhere if you value greater flexibility and liquidity over the potential tax advantages you’ll receive in any given year.

If you’re still relatively young at 35, going all-out on the 401k every single time may or may not be the optimal course of action, depending on your liquidity needs. A financial advisor can point you in the right direction if you’re at all unsure as to what you should be doing with paychecks moving forward.

In any case, if one expects to make a heck of a lot more money in the future (likely for someone in their 30s unless, of course, they’re pursuing early retirement), it may make sense to put off the 401k contributions and allocate funds elsewhere, especially if one’s employer isn’t willing to match at this moment in time. Of course, if there is a match available, I believe maximizing 401k contributions is the number one priority. By maximizing your match, your retirement plan will get a huge shot in the arm. As such, it makes sense to get the biggest shot possible from your employer.

Key Points About This Article

• Assuming no employee match, contributing to accounts outside of a 401k can make sense.
• A financial adviser can help you most effectively allocate funds across accounts.
• Also: Is your 401(k) optimized for your retirement plans? (Sponsored)

The case for putting more funds in a non-registered account

Personally, I think it makes sense to think about allocating some funds to a non-registered brokerage account outside of the 401k. That way, one has the freedom to access the funds without taking any sort of tax hit to the chin upon withdrawing from an account.

Sure, one may need to pay capital gains taxes as they come in a non-registered brokerage account. Still, if one’s income is modest and expected to increase, diversifying across accounts can make lots of sense. As always, there are pros and cons to holding funds and investments in any specific account.

When it comes to non-registered brokerage accounts, dividends and capital gains may stand to be taxable. Still, at the very least, you’ll be able to take capital gains on holdings should some unforeseen expense show itself at some point in the near future (think far before retirement). Further, if you have any capital losses, you’ll be able to harvest such losses to offset gains elsewhere in your non-registered brokerage account.

Let’s say you’ve got a five-year investment horizon and want to be prepared for a potentially hefty expense (perhaps a hole in your home’s roof that needs a repair) that could show itself at some point in the future. In such a scenario, you may be able to take profits in the non-registered account while leaving your 401k to do its thing until your eventual retirement.

The bottom line

Indeed, meeting up with a financial adviser is a smart move so that one can most optimally allocate funds in a way that balances tax advantages with their ability to access the funds over a near-, medium- and long-term time horizon.

Additionally, people should prioritize 401k contributions if their employer offers a match. In many ways, such employee 401k matches are like “free” money. That makes contributing an amount that leads to the highest match sum the most practical move, in my opinion.