Having Both A 401k Retirement Plan And A Private Trading Account

Posted by Journalist

November 5, 2009

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401K plans are great, but they can also be extremely limiting, especially if you are planning on retiring early. In many cases it can be much better to have two separate accounts, one for your retirement plan , way off in the future and one for your own personal savings plan.

The advantage of a 401k plan is clear, you get tax free growth. Tax free growth can multiply without being slowed down by Uncle Sam. This is probably the best advantages of the plan, but it is not the only one.

Many employers will also contribute to your plan giving you a big push up. So if your employer invests $.50 for every 1 dollar and you invest $1,000 your employer will invest another $500 into your plan.

This added bonus makes it too irresistible to pass up. It is free money after all.

But it does come with some downsides. For starters there is a limit to how much you is allowed to invest. So if you happen to be making a large income you may not be able to put away as much as you would want to into the plan.

Even worse they have 401k withdrawal rules that do not allow you to take money out early without paying a 10% penalty. This can be a major inconvenience especially if you were saving up money the entire time for the sole purpose of retiring early.

Not everyone is happy working until they are old and grey, some of us want to get out and enjoy life to its fullest while we are still young.

Luckily there are many other ways to retire without relying 100% on your 401k. Opening up your own private stock account for instance can be extremely beneficial and will let you do whatever you want with your money, which may or may not be a good thing.

A private account has its own advantages because I believe anyone is able to learn stock market trading and make a much better than their 401k plans will. The reason being is that a lot of professional money managers will be over diversified.

Many Professional managers will buy 400 different securities in 30 separate countries in order to create diversification. But it is impossible to find 400 excellent investments and only makes it harder to make a good return.

With an individual account an individual can still seek safety while at the same time attempting to increase their own returns from the market.

The other advantage of opening your own personal account is that you are allowed to take money out of a private account whenever you want. So if you get to the point where you are making a few thousand dollars a month from your investments then you might decide to retire early.

It can be a good idea to have both a 401k and a private account, this way you have one to help seek an early retirement and one to help you get some long term safety if the other does not work out.

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