Should I keep contributing to my 401(k) or use those funds to invest?
I am 29 years old and I have an investment account with $30,000 invested. My portfolio predicts that my account will be growing at 6.29% annually. Should I stop contributing to my 401(k) and put those funds into my investment's account instead? My 401(k) is matched up to 3%.
If you find money under a rock pick it up- it sounds obvious but if you ignore your company match you are leaving money under that rock.
You probably have more financial goals beyond just RETIRING- so yes you should put some money into your -non-retirement account, and some into the 401k.
In general unless your 401k totally blows you should be able to achieve similar investment returns in your investment account as your 401k.
Contributing the max amount to take full advantage of employer matching is a smart move as that is "free money" coming from the company. After that, you should max out a Roth IRA (federal tax-free growth and qualified withdrawals), which allows you to avoid Required Minimum Distributions mandated by other retirement accounts. After that, you could open an individual taxable account for shorter term goals that allow withdrawals at any time without penalties. Consider an ETF portfolio allocated based on your goals and time horizon.
This is very simple. Answer these three questions
1-Do you like an instant 50% to 100% return on your investment? If so, be certain to contribute to your firms 401k.
When you say the your company has a 3% match it sounds like a safe harbor provision where the firm matches your contribution up to 3% of your salary. Depending on the terms of your firm's 401k Plan it could well be a $1 to $1 match (or possibly 50% match). This means that for every dollar you put in your account has $2. That is an 100% return. Where can you invest out side the 401K and get a 100% return?
2- Do you want to pay less income tax?
If so, contribute to the 401K. For every $1000 up defer you do not pay tax on the Money. You live in TX so there is no State income tax but you probably pay Federal income tax. Lets assume that you pay 15% fed tax. If you invest the $1000 in your 401k you have $1000 invested. If on the other hand you did not put the $1000 in the 401k and preferred to put money in your investment account, of that $1000 after you pay $150 of income tax you only have $850 to invest.
3- Do you prefer tax-free income or taxable income?
If your 401k plan offers a Roth option that too is better than a taxable account.
Since you did not state all the information that an advisor would ask you prior to giving you advice, do not take this response as advice in your situation.
First of all, where did you get the wacky idea that your portfolio will grow predictably at 6.29% (I love the precision of that -- two decimal places! Imagine that!)?? This number is certainly wrong.
If your portfolio has a mix of asset classes, and it should (and it should be mostly or entirely in equities at your age) then it is subject to investment risk. It will have years when it will do much better than 6.29% and years when it will decline. All this is perfectly normal and natural and nothing to worry about. Over the long term your annualized total return may be a lot more than 6.29%, or not. Still, keep your investment account fully invested and "pay yourself" every month, along with the rest of your bills. Force yourself to sock away some of your take-home pay regularly, regardless of whether the market is rising or declining.
Do this in addition to saving for retirement. DO NOT reduce your 401K contributions. You can make up to $18,000 in contributions per year and not pay current income tax on the amount. Don't stop at 3% or your income just because the match does. Put away the whole $18,000 if you can. So few people actually save enough every year, and millions of people have no savings at all. Don't be one of them. You don't want to have to work a minimum-wage job when you are 75. You need savings of at least 20 times your annual living expenses (net of SS) if you expect to live comfortably in retirement.
Theoretically, your 401k and your investment account could experience similar growth rates, assuming they were allocated similarly. I don't think there is a significant investment upside to investing outside of a 401k plan. However, there is a significant future tax advantage to investing in a 401k account rather than a regular investment account, therefore I would recommend allocating to your 401k, in addition to or instead of other investing you are choosing to do.
Apart from investment returns, a 401k match is a 100% return on investment, so if nothing else, be sure to contribute whatever you need to in order to receive the full match from your employer - look at this as free money!
Remember that unlike your regular investments, assets in a 401k account cannot be withdrawn until retirement age. If withdrawn before that, a 10% penalty will be assessed, in addition to any taxes due, so keep this in mind when deciding how much to contribute.