Retirement Retirement Planning

Dave Ramsey Weighs In on 401(k)s - And His Advice Isn’t Comfortable

Your 401(k) strategy might need work.

By Catherine Collins

Edited by Laura Hohenstein

Updated Feb. 5, 2026

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Dave Ramsey has helped millions of people become debt-free and financially independent through his 7 Baby Steps method and several best-selling books. He's known for having a tough-love, no-nonsense approach and for giving advice to his listeners through his incredibly popular radio show and podcast.

One topic he frequently discusses is 401(k) retirement plans. He believes people should use a 401(k) plan if their employer offers one. However, he is adamant that Americans understand their plan, its limitations, and other options they have for retirement accounts. Here are some of his top pieces of advice about 401(k) plans.

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Take the employer match only if you're debt-free

Ramsey teaches that employees should take their company match, but only if they don't have any consumer debt, with the exception of a mortgage. Most financial experts teach that you should take your company's match no matter what, because it's essentially free money. However, Ramsey teaches that if you have consumer debt, including student loans, medical bills, credit card debt, or personal loans, for example, you should pay all of that off before investing in a 401(k) and getting the company match.

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Don't max out your 401(k) without an emergency fund

Although Ramsey explains that maxing out a 401(k) is a great goal, his advice is not to do it unless you have a solid emergency fund. That's because many people who don't have one end up taking a hardship withdrawal from their 401(k), which can negatively impact investment returns. Instead, he says to avoid that scenario entirely by building a three to six month emergency fund in a high-yield savings account. Once that's in place, and you're also consumer debt-free, he recommends working to max out your retirement accounts.

Make sure you understand 401(k) options

Ramsey says it's important that people learn about their investment options. Many employees may be able to purchase company stock in addition to mutual funds, target-date funds, and other investments. Ramsey explains that some options, like annuities, have too many fees and are confusing. That's why it's important that employees take the time to learn about their options and what they cost before choosing their investments. He recommends working with a financial advisor if you need help choosing your investment options.

Don't time the market

In a recent interview, Ramsey explained that the biggest mistake Americans make with their 401 (k) plans is trying to time the market. He says people get scared when the market turns volatile, jump out, then back in. That can hurt investment returns and can be incredibly stressful. Instead, he encourages people to consistently invest in their accounts over a long period of time rather than letting short-term market drops impact their investment strategy.

Don't rely on just one retirement account

Ramsey teaches that people should have more than one retirement account. In fact, he recommends (once you're debt-free, of course) to contribute enough in your 401(k) retirement plan to get your employer match and then invest in a Roth IRA. He recommends investing in growth stock mutual funds in these accounts and is against volatile investments, like cryptocurrency.

Why Ramsey prefers Roth IRAs

There are a few reasons why Ramsey prefers Roth IRAs over 401(k)s, although as mentioned, he does recommend that people invest in both account types, especially if they have a 401(k) employer match. The main reason Ramsey prefers Roth IRAs is that you can withdraw the money tax-free in retirement as long as you meet certain qualifications. Additionally, if you don't want to take money out of your Roth IRA, you don't have to, as there are no required minimum distributions. The drawback to Roth IRAs is that your present-day contributions won't lower your taxable income as 401(k) contributions do.

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Why Ramsey's approach resonates

One of Ramsey's frequent quotes is, "To be clear is to be kind." His advice is direct, practical, and at times, can feel abrasive. However, many people appreciate this approach because it provides a framework for paying off debt and building wealth in the future. Ramsey comes from experience, having declared bankruptcy himself when he was younger. He draws on all his experience, including his mistakes, and talks openly about them to help others become financially free.

Bottom line

Not everyone agrees with Ramsey's money advice, and that's ok. While there are many detractors, there are also many Ramsey followers who have retired comfortably by following the 7 Baby Steps.

Ultimately, Ramsey's advice about 401(k)s is to take an active approach when investing in one by paying attention to investment options, fees, and the tax implications of your retirement accounts. He also recommends investing in a Roth IRA in addition to a 401(k) and consulting experts when needed to ensure you're on the right track with your retirement goals.

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