Someone posted on Threads that nearly every millionaire uses 401ks as a big part of how they built their wealth. That’s true! This response was sadly one of the most popular replies. I was ready to frantically thumb type a sharply worded response when I remembered, “Hey wait a minute, I have an audience of hundreds of thousands I can bother with this instead!” So here we are.

Sadly, also in those comments were lots of people agreeing that 401ks are a scam. Some of them were predatory insurance salesmen purposely pushing a false narrative. Others were seemingly confused consumers who either didn’t understand or made a mistake with their own 401k. So let’s break it down.

First, 401ks are not a scam. That doesn’t even make sense. A 401k is just a type of account. Without anything inside, it’s not a scam because it’s not ANYTHING. Saying “401ks are a scam” is kinda like saying “cups are poisonous”. Just because you heard of a guy who drank poison out of a cup, doesn’t mean cups are poisonous. In fact, cups are a great way to drink HEALTHY things.

So a 401k is a type of account. Inside that account you buy investments. EVEN BETTER, you get a BIG TAX BREAK for doing so. There are two types of tax breaks you may be able to get on a 401k: Traditional and Roth. It’s a BIT too much to go into in this caption, but the gist of it is that EITHER ONE is going to save you a boatload in taxes compared to investing in a regular brokerage account. WHICH INVESTMENTS do you buy inside of your 401k? Ideally, index funds. And you buy, buy, buy with a plan to hold for decades. That’s how rich people get rich.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy