I'd Tell Anyone in This Situation to Stop Funding an IRA or 401(k)
Written by Maurie Backman for The Motley Fool -> IRAs and 401(k)s come loaded with tax benefits. That doesn't automatically mean you should continue making contributions. There's a specific scenario where it pays to halt IRA or 401(k) contributions immediately. You'll often h
That doesn't automatically mean you should continue making contributions.
There's a specific scenario where it pays to halt IRA or 401(k) contributions immediately.
You'll often hear that if you're trying to save for retirement, your best bet is to make contributions to an IRA or 401(k). That's because these accounts are loaded with tax breaks.
With a traditional IRA or 401(k), your money goes in on a pretax basis, allowing you to legally shield some of your income from the IRS. Investment gains in an IRA or 401(k) are also tax-deferred, which means you don't pay the IRS on those gains until you take withdrawals.
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That's important, because many people end up in a lower tax bracket in retirement than during their working years. So it's better to pay taxes on gains at that stage of life than when you're earning a large paycheck and are in a higher tax bracket.
But as much as it often pays to fund an IRA or 401(k), there's one specific scenario where it makes sense to stop. It's important to know how to redirect your money if that situation applies to you.
A lot of people hope to retire early, but acknowledge that it may be a pipe dream. However, if you're well into your career and have been saving consistently, you may have enough money that early retirement is more than feasible.
