Why I’m Saving for Retirement in More Than 1 Account

Years ago, when I worked as a salaried employee, I began saving money for retirement in the 401(k) plan my company sponsored. But at this point, I have multiple retirement accounts — a 401(k), an IRA, and a regular brokerage account. Here’s why.

It’s all about options and flexibility

A big reason I have money set aside for retirement in multiple savings plans and accounts? I want options.

One benefit of having an IRA, for example, is that you’re allowed to put your money into individual stocks — something 401(k) plans generally don’t allow you to do. On the other hand, IRAs have lower contribution limits than 401(k)s, so using both accounts could work to your benefit. By branching out into an IRA years ago and not just sticking to a 401(k) plan, I had more options for investing the way I wanted to.

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I also have money in a regular brokerage account that’s earmarked for retirement purposes. That account doesn’t offer me any tax benefits. But it does offer me flexibility.

With a 401(k) or IRA, you’re barred from taking withdrawals until age 59 1/2, and early withdrawals are subject to a 10% penalty. Now as of this moment, I don’t intend to retire early. If anything, I would like to retire on the later side, namely because I’m worried that I won’t really like retirement.

But I also can’t predict how things will shake out career-wise. For all I know, I’ll end up burning out and wanting to retire early instead. I’d like the option to do that without being penalized for accessing my own money, which is why I need to have some of my assets in a regular brokerage account.

It pays to spread your money around

Social Security most likely won’t provide you with enough income for a comfortable retirement. And so it’s smart to save on your own so you have a means of supplementing those benefits. But it’s also a good idea to save for retirement in multiple accounts so you have options when it comes to investing your money and accessing it later in life.

If you have access to a 401(k) plan that comes with an employer match, it definitely pays to contribute enough to that account to snag that match in full. But beyond that, you may want to branch out into an IRA so you have more investment choices.

Similarly, if you’re eligible for a health savings account, or HSA, that’s another good plan to save in, because it’s very flexible and it offers more tax breaks than IRAs or 401(k)s. As it happens, my health insurance plan isn’t compatible with an HSA — otherwise I’d rush to participate in one.

Finally, consider giving up a tax break on some of your money and saving for retirement in a regular old brokerage account. Having unrestricted access to your money could come in handy if your retirement plans change, or if a situation arises where you need cash in a pinch.

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