How are tariffs intertwined with 401(k) retirement savings?
Experts say rising tariffs can lead to several factors that affect your retirement savings.
Contributing to a 401(k) is one of the best ways to save money for retirement, and this type of account has some clear advantages.
One has a much higher contribution limit range than many other retirement accounts. In 2025, you can invest up to $23,500 a year in your 401(k), but the contribution limit for traditional IRAs and Roth IRAs (individual retirement accounts) is only $7,000 a year.
However, if you are making enough contributions to make the most of your 401(k), you can put yourself at a disadvantage in a way. This is the way.
Limited investment options can also limit your profits
When investing in a 401(k), there are generally a few investment options set by the company plan, such as target date and other types of mutual funds.
There’s not necessarily a mistake in these investments, but it offers little flexibility, especially where you invest. If you prefer a more practical approach that is more likely to get above average returns, changing your investment within 401(k) can be difficult and sometimes even impossible.
There are far more options for other investment accounts, including IRAs. From large market index funds to industry-specific exchange trade funds (ETFs) to individual stocks, there are plenty of investments that most 401(k) simply don’t offer. With a good strategy, these investments could significantly outperform many mutual funds in the 401(k) plan.
Also, many mutual funds found in the 401(k) have far higher fees compared to index funds and ETFs. Investing in accounts other than 401(k) can not only earn you more, but you could also save thousands of dollars.
Early (and late) retirements can be more expensive
If you plan to retire outside of your 60s and most or all of your savings are tied up at a 401(k), you may throw a wrench into your plan.
59 If you withdraw money from a 401(k) before 1/2 years old, you will usually get a 10% penalty on the withdrawal amount. Individuals at least 55 years old may avoid these fees, but that applies only to 401(k) plans through modern employers. This is not all the old plans from previous work.
At the other end of the spectrum, hiccups can occur if you delay retirement sufficiently in the ’70s. At age 73, the elderly must begin taking the required minimum distribution (RMD) from the 401(k) account. This is because the 401(k) contributions are tax-free and tax-deferred, and the forced withdrawal ensures that the government will ultimately acquire tax revenue.
There are also RMD exceptions for those who are still working. If you own less than 5% of the company you work for, you may be delaying your RMD until you retire. However, as with early withdrawals, this applies only to 401(k) sponsored by the current company, not to previous accounts.
If you plan to retire much earlier than most traditional workers, it may make more sense to contribute to a Ross IRA, Ross 401(k), or a taxable brokerage. These options provide more flexibility with drawers and more options when you leave.
When rewarding sticking to 401(k)
There is still a great reason to continue to contribute, even if the 401(k) is not ideal. Employers match contributions. If the employer matches a 401(k) donation, it is essentially free money and could increase your savings by several thousand dollars a year.
Also, please note that there is no reason why you cannot contribute to multiple accounts. For example, with enough investment to make enough investments in the 401(k), get a full match for your employer and hide the rest from the Roth IRA to avoid RMD. If you make the most of your IRA, you can choose to put the rest in a brokerage in search of more investment options.
The 401(k) is a very powerful tool. However, if you’ve put all your eggs in one basket by maximizing this account, you may miss some great perks from other types of accounts. A more balanced approach allows you to earn more, save more, and set yourself up for better retirement.
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