Should I Max Out My Retirement Account or Invest Elsewhere?

Time and time again, you will hear me say, “max out your retirement accounts!” However in this situation, I’m saying DON’T! I know you’re probably thinking, “What?!?!?!?!” I get it, but hear me out on this one!

I recently had a conversation with a client about maxing out their deductible retirement accounts and I feel like I need to give you some insight into something you may not expect to hear! My client asked, “should I max out my retirement account?” We are talking about a deductible retirement account – a Traditional IRA, Solo k, a 401(k) etc. I actually told this particular client, “No.”

“What? Don’t add any more money?”

I began explaining to him. We ran the numbers and if he were to max any of these accounts, whatever the number is for that particular account, he would’ve only gotten a small reduction in his taxes. So I told him, “We don’t need to max these out. Honestly, we don’t really even need to put any money into them on a deductible basis. Let’s do this. Max out your Roth IRA for you and your spouse. Then take the difference in the money you have set aside and apply it to some of your other ventures. He’s a business owner. I pointed out that it made more send to build on some strategic parts of his business and add to his revenue that way.

Listen, just because you have an IRA or a 401(k) doesn’t mean you have to use them. I’m all about max them out when it makes sense, but just because you have them doesn’t mean you have to use them or that it’s the right option for you! YES, I like the idea of saving for retirement but we’re talking about business owners here and many times business owners can make more return on their investment in their private business then they can in their retirement account.

I’m not going through all the long-term ramifications pros and cons, however, in this case, we just decided not to do it and he is instead going to invest in some real estate through his business. He’s a very smart cookie. So anyway I thought I’d give you that feedback. See you just never know what you’re going to hear from a CERTIFIED FINANCIAL PLANNER™ who looks at your entire life and shows you how to build wealth as fast as possible guys! Justin Goodbread with Financially Simple signing off!

If you have questions about your specific situation, contact me and I’ll help you make it as Financially Simple as possible.