While retirement accounts are very important, people often overlook the importance of contributing to a non-retirement account
Many people in their late 30s and early 40s are doing a great job contributing to their 401(k) and taking advantage of employer matches, but outside of that, there’s often a gap. I frequently see excess cash sitting in bank accounts earning very little, or no real strategy around building a non-retirement investment account. The challenge is that retirement accounts, while incredibly valuable, come with strings attached: penalties before age 59½, required minimum distributions later on, and may offer limited flexibility when you want to make a move on your own timeline.
That’s where a non-retirement account can be incredibly useful. It offers liquidity and control, whether that’s funding a major purchase, covering a gap in income, or supporting an early retirement before penalty-free access to retirement funds. From an investment standpoint, this money doesn’t have to be aggressively invested to be effective. For example, a balanced portfolio earning 5–6% annually can turn $50,000 into roughly $90,000–$100,000 over 12–15 years*, without taking on excessive risk, while cash or bank savings accounts may struggle to keep pace with inflation.
Just as important, building this type of account helps create valuable tax flexibility over time. In retirement, having assets across both retirement and non-retirement accounts allows you to better control your taxable income drawing from taxable accounts in lower-income years, managing capital gains, or reducing the need for large withdrawals from tax-deferred accounts that could push you into higher brackets. The goal isn’t to replace retirement savings, but to complement them. When both are working together, you gain more control, more options, and a more efficient long-term plan.
An actionable step to take:
If you find yourself thinking "sounds great but all our extra money goes towards retirement accounts", here's my recommendation. Temporarily reduce your retirement account (401(k)/IRA/403(b)/etc.) contributions until you have built up 6 months of your salary in a non-retirement account. This will provide a solid base that you can begin investing with for growth, while providing you a safety net for a gap in employment, car repairs, or future projects you want to take on. Once you hit that goal, you can ramp back up your retirement account contributions.
Additional questions or comments? Reach out to me: chad.goldberg@Lpl.com and we can talk further.
*This is a hypothetical example and not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risks, including possible loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.