I Used to Think Maxing Out a 401(k) Always Made Sense. Here's Why I Was Wrong.

My first job out of college didn't offer a 401(k) plan right away. And that was something I resented during those early years of saving for retirement.

Sure, I had access to an IRA. But I really wanted that 401(k) for the workplace match (which, incidentally, I never wound up getting even when my employer started offering its own company plan).

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My second full-time job out of college did offer a 401(k) off the bat, and I signed up right away. Back then, I was convinced that maxing out a 401(k) was the best thing you could do for your retirement.

But I've since changed my tune on 401(k)s. And while I think contributing to some degree makes sense, I no longer think maxing out is the best move across the board.

Why maxing out a 401(k) could come back to bite you

This year, 401(k) plans max out at $24,500 for workers under 50 and $32,500 for those 50 and over. What this means is that if you max out a 401(k) for a good number of years, you could end up with a large amount of savings by the time you're ready to end your career, all the while enjoying a tax break on contributions.

But you may not be able to access your savings penalty-free when you want to. And that's a big problem with maxing out a 401(k).

Let's assume you contribute $2,000 a month to a 401(k) over 30 years, which is actually a bit shy of maxing out for savers under 50. If your investments grow 8% a year, which is a bit below the stock market's average, you could end up with roughly $2.7 million.

Now, let's say you start funding that 401(k) at age 22 and that you accumulate your $2.7 million by age 52. At that point, you might say, "Okay, I'm done working, and I'm going to live off my savings starting now."

Well, not so fast. If you have all of your money in a traditional 401(k), you'll typically face a 10% early withdrawal penalty if you start taking distributions before age 59 and 1/2. Talk about a frustrating situation.

Even if you don't end up wanting to retire early, there's another issue with maxing out your 401(k) -- you may not get access to the investments you want. That's because 401(k)s typically limit you to a bunch of different funds. They don't let you hold stocks individually like IRAs do. That could result in not just a sub-optimal portfolio, but also higher investment fees than you want.

The smart way to fund a 401(k)

It definitely makes sense to contribute to a 401(k) plan if your employer offers a matching contribution. If you don't put money in from your own paycheck, you'll give up the free money your employer is willing to hand you.

But beyond that point, you may want to split your money across a few different accounts -- namely, a 401(k), an IRA, and a taxable brokerage account.

An IRA allows you to enjoy tax savings on your contributions while opening the door to more investment choices. A taxable account, meanwhile, allows you to withdraw your money at any age without a penalty. If you're a strong saver and expect to end up in a position where you can contemplate early retirement, that's important.

Also, a taxable account won't eventually force you to take required minimum distributions like a traditional IRA or 401(k) will. So all told, you get more control over your money.

To be very clear, I think 401(k)s are an extremely useful retirement savings tool. I just don't think maxing out is automatically a smart move for everyone. So before you push yourself to do that, you may want to consider leaning on a combination of accounts to house your retirement nest egg.

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