Dave Ramsey Says Your 401(k) Alone Won't Cut It — Here's the One Retirement Move You Need To Make Before 2027
Though you may be years — even decades — away from retirement, Dave Ramsey would like you to be actively planning financial security for your golden years. And, true to form, he’s not mincing words. Sure, Ramsey acknowledges that a 401(k) is an essential part of solid retirement planning — but a 401(k) alone often won’t cut it.
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One recent article on the Ramsey Solutions website summed up his attitude succinctly: “If it’s not clear by now, we love the 401(k) for retirement investing! But as great as it is, it’s not always enough on its own.”
Oof. So why does Ramsey think this bedrock of retirement investing isn’t enough on its own — and what does he think you should do to make those golden years shine more brightly? MoneyLion took a closer look.
A 401(k) Is a Tool — Not a Total Plan
Chief among Ramsey’s concerns is the idea that too many Americans believe their 401(k)s alone can fund their retirements. Instead of regarding it as a great place to start the race toward retirement, they think of it as the finish line. Ramsey’s general rule is that you should invest 15% of your gross income toward retirement. He said certain factors may limit the ability of a 401(k) alone to help you reach that target.
Your 401(k) may be overly dependent on employer plans and default investment options. Because most companies partner with a brokerage firm to administer their 401(k) plans, employees may only have what Dave Ramsey called “a limited menu of investment options — mostly mutual funds, index funds and target-date funds.”
He’s also concerned that employees may feel underwhelmed by their options. If that's the case, his guidance is to pick the best options available and invest at least up to the match, then consider adding another account where you have more control.
You could also face high maintenance or administrative fees with a workplace 401(k). While Ramsey encourages people not to get too in the weeds on this front, it’s still worthwhile to ensure you’re not being burdened by those fees.
And even if you’re doing “everything right” inside the plan, there’s another limitation to consider.
Contribution Limits Can Be a Hidden Trap
Unfortunately, even if you’re maxing out your 401(k) every year, Ramsey said you’re still operating within a government-imposed ceiling — which can limit how quickly your retirement savings grow or keep you from hitting his 15% target using a 401(k) alone. For example, if 15% of your income is higher than the annual contribution cap, you’ll need another place to invest.
While Ramsey acknowledged that maxing out your 401(k) means you’ll have more money saved for retirement and that your investments can grow faster — for the record, he’s not against it — he also wanted people to understand it’s not the best option for those still climbing out of debt or without emergency savings.
Adopting a 401(k)-only strategy can limit your ability to scale wealth quickly enough to retire securely — especially if you start late.
The Move To Make Before 2027: Open and Fund a Roth IRA
For Ramsey, one of the most important money moves you can make to prepare for retirement is opening and funding a Roth IRA, while also contributing to your 401(k).
“We surveyed more than 10,000 millionaires in our National Study of Millionaires,” Ramsey wrote. “A huge majority (74%) said they invested outside of their workplace retirement plan. This isn’t an either/or situation — it’s both/and.”
Ramsey referred to the Roth IRA as “the butter to the 401(k)’s popcorn” for a few specific reasons:
Tax-free growth and withdrawals
Flexibility
This latter point is especially important for people who may be underwhelmed by the investment options available through their 401(k).
“You can work with an investment pro to choose from thousands of mutual funds to invest in through your Roth IRA,” Ramsey said. “That means you can choose high-performing funds and diversify with different fund types.”
How To Combine Your Roth IRA and 401(k)
If the thought of combining your 401(k) with your Roth IRA seems complex, Ramsey has outlined a strategy he finds effective:
Step 1: Contribute to your 401(k) up to the employer match
Step 2: Max out a Roth IRA for tax-free growth and flexibility
Step 3: Return to your 401(k) to reach 15% of your total investing goal
Ramsey explained that the real challenge is investing consistently — but the rewards are worth it.
“When you invest in your workplace 401(k) and a Roth IRA, you combine the power of the match in your workplace 401(k) with the tax-free withdrawals and flexible fund options of a Roth IRA,” Ramsey said. “That’s a winning combo.”
The Bottom Line
While contributing to your 401(k) is incredibly important, Dave Ramsey cautions that it shouldn’t be your only source of retirement income. At the very least, you should consider adding a Roth IRA to the mix before 2027.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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