Personal Finance

My wife and I are set to receive a large inheritance later in life - can we afford to stop stashing so much money in our 401(k)?

Kristin Hitchcock

Published: December 9, 2024 9:51 am

Trying to balance long-term savings and enjoying life can be a very tricky tightrope to walk! One Reddit user shared a situation that brings up this problem: a combined $700K in retirement accounts, $1.1M in cash savings, and a projected inheritance of $7–$9M.

The poster is wondering if they’ve already put too much into their 401(k), especially given that they’re only 36. While 401(k) accounts are great for retirement, it is possible to put too much into them! But when do you know it’s too much?

Let’s take a closer look at this Redditor’s situation and then answer this question.

Key Points from This Article

• Financial planning isn’t about arbitrary milestones. It’s more about aligning money with values. 
• It’s important to regularly recalibrate your contributions to retirement accounts and other investment options. When you do, consider what options help you reach your goals. Don’t invest somewhere just because you’re “supposed” to.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

The Numbers at a Glance

• Current 401(k) balance: $700K (together)
• Non-retirement cash balance: $1.1M
• Projected inheritance: $7–$9M
• Ages: 36 and 31

The couple is standing on a very strong financial picture, as they have both substantial retirement savings and a lot saved in non-retirement accounts. The question isn’t about whether they’re saving enough but about whether they are putting too much in retirement accounts. 

Key Considerations

1. Access vs. Growth

Retirement accounts like 401(k)s have clear advantages: tax-deferred growth and, in some cases, employer matches. However, there are major restrictions on when your money can be accessed. It isn’t nearly as liquid as other investment options. (Make sure you can answer these 401(k) questions before investing in one of these accounts). 

For this couple, who already have a significant non-retirement cash cushion, reallocating some future savings towards a more accessible investment might provide more flexibility for expenses before they hit retirement age. 

2. Inheritance Factor

The anticipated $7–$9M inheritance dramatically changes the equation. However, I never recommend counting on an inheritance until it’s in your account. Inheritance timelines are unpredictable, and you cannot rely on someone else to reach your financial goals!

I’d recommend completely ignoring the inheritance in the equation. 

3. Lifestyle Goals

Really, this question is about lifestyle goals. If they prioritize experiences and flexibility now, reducing 401(k) contributions in favor of more liquid investments could make sense. On the other hand, if they want to maximize tax advantages and ensure a larger nest egg for retirement, I’d recommend continued contributions at some level. 

If they get an employer match, continuing contributions enough to get this “free money” is recommended. 

Middle Ground Options

Luckily, you don’t have to choose an all-or-nothing approach. Here’s what I would recommend:

• Continue contributing up to the employer match: This strategy captures free money while freeing up additional income for other uses. I wouldn’t recommend leaving this free money on the table, even with the amount of money they currently have in their 401(k).
• Explore Roth IRA conversions: If they want some sort of tax benefits without locking up their money until retirement, I’d recommend looking into Roth IRAs, which offer a blend of flexibility and tax benefits. 
• Invest in a taxable account: I’d still recommend investing in a taxable account, too, for maximum flexibility. 

Remember, though, this is just my opinion and not financial advice. A financial advisor can help answer questions regarding your specific situation, as everyone’s situation is unique!