According to the loudest voices on social media, the traditional 401(k) is a trap designed by the government and big bad corporations to steal your money.

Grant Cardone, for instance, has referred to 401(k)s as “the biggest scam on the American public, perpetuated by our banks” (1). The solution, they say, is to abandon traditional retirement accounts and pile into real estate, crypt, or whatever happens to be trending.

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That framing is entertaining. It is also mostly nonsense. The 401(k) plan may not be perfect, but it is an integral part of millions of Americans’ retirement strategy.

In fact, a growing number of investors have managed to hit seven figures in their 401(k)s. As of the third quarter of 2025, the number of 401(k) millionaires reached a record high of 654,000 individuals, according to Fidelity (2).

Simply put, the 401(k) is a robust tool for wealth building. That being said, there are legitimate (non-conspiratorial) reasons to suspend or reduce your contributions. Under certain circumstances, the math suggests it’s more efficient to place your money in alternative accounts rather than in your 401(k).

Here are three potential reasons why you may want to consider pulling back on your 401(k) contributions.

For high-income and wealthy individuals, the biggest risk isn’t running out of money. It’s taxes.

Saving too much in a 401(k) plan, especially as you approach your 70s, could put you at risk of large Required Minimum Distributions (RMDs). These are government-mandated withdrawals from your tax-deferred accounts starting at age 73 for most individuals under current law (3).

If your 401(k) balance is relatively modest, these mandated withdrawals may not impact you much. But if you have multiple millions locked into this account, you could face huge withdrawals in your 70s that push you into a higher tax bracket and trigger additional charges such as Medicare’s Income-Related Monthly Adjustment Amount (IRMAA).

With this in mind, take some time to forecast how big your RMDs could be given your current financial plan and consider adjusting your plans and reducing or suspending 401(k) contributions if these withdrawals are projected to be unusually large relative to your income needs.

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The 401(k) is designed to help investors defer taxes during their working years so that they can build wealth and potentially pay taxes at a lower rate in retirement. In other words, it’s designed for those with excess cash and the ability to lock away that cash for several decades.

If you’re facing an immediate cash need, contributing to your 401(k) might not be the best move. For instance, if you are trying to pay off expensive debt, save for a down payment on a home purchase, or cover imminent medical expenses, you may need liquidity more than a tax deferral.

The need for liquidity is not glamorous enough for social media “finfluencers” to cover, but for many ordinary Americans, it is a harsh reality that demands uncomfortable decisions.

If you retire early, perhaps in your 50s or even 40s, contributing to a 401(k) can create liquidity challenges. The excess cash you invest could have been used to plug the gap until Social Security kicks in. Also, the money held in your 401(k) is usually difficult to access before age 59½ without triggering penalties (4).

Yes, there are strategies such as 72(t) substantially equal periodic payments and Roth conversion ladders. But they add complexity and require careful planning to avoid taxes and penalties.

Simply put, any excess cash in early retirement could be better allocated to more accessible accounts, perhaps including a taxable brokerage account or a Roth IRA (if eligible). If retiring before your 60s is the ultimate goal, consider speaking with a financial advisor to plan your taxes, contributions and withdrawals in the most optimal way.

For most workers, especially those with modest or average incomes and net worth, the 401(k) plan remains one of the best wealth-building tools available. Only under specific circumstances, based on math rather than conspiracy theories, does it make sense to stop contributing.

So, if you see a finance influencer on TikTok claiming this program is a “scam,” consider reviewing the evidence before making changes to your retirement strategy.

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TikTok (1); Fidelity (2); IRS (3), (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.