Should you invest in stocks outside a 401(k)?

Contributing to a 401 (k) retirement account and investing in individual stocks outside a retirement account represent two drastically different approaches. A 401 (k) account is part of many employer-sponsored retirement plans. They offer immediate tax savings and, sometimes, employer matching of contributions. They also have notable restrictions.

What is a 401(k) & how does it work?

A 401 (k) is a retirement savings plan sponsored by employers. You fund the account with money from your paycheck, you can invest that money in the stock market, and you earn some tax perks for participating. That's the basic (and slightly boring) definition of a 401 (k). What is a 401 (k)?

Will a 401(k) outperform stock picking?

A 401 (k) will outperform stock picking for most people. First, a 401 (k) comes with tax advantages. One option is the Roth 401 (k), where you pay income taxes on your contributions up front, and then withdraw the money tax-free in retirement. For a non-Roth account, the money invested is subtracted from pre-tax earnings.