Many investors think it's responsible to max out their 401(k) contributions, but it's not the best move for some households. Tax-deferred accounts like a 401(k) or traditional IRA can be a healthy piece of a comprehensive retirement plan. However, they also have some drawbacks that people need to consider before relying too heavily on them.

The 401(k) has been promoted by regulators and many financial professionals as a replacement for defined benefit pensions, which are quickly disappearing. There's no doubt that a 401(k) can be a powerful tool for saving. People can increase their savings rate by automatically withholding a portion of every paycheck. Many employers offer a contribution match, and it's important to take full advantage of these benefits when possible to improve your savings rate.

More than anything else, 401(k) contributions are popular because they are tax deferred. This reduces taxable income and can push some households into lower brackets. It also allows account holders to invest pre-tax dollars, delivering larger returns. It's plain to see the benefits that have made these accounts so popular with reputable financial professionals such as accountants, advisors, and attorneys.

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Source Fool.com