Why put money into a 401k past the match when you get taxed as ordinary income once you pull it out. The long-term capital gains tax would most likely be lower (15-20%) and your funds would be more liquid (brokerage acct. vs 401k)

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Only taxed once. Brokerage account is taxed twice

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Withdrawals meaning when you pull funds out of your retirement count to fund your life once retired

Really you should invest in retirements funds that are tax diversified. So you should get Roth options which are taxed now, but grow tax free, and traditional options like a 401k, that aren’t taxed now, but are taxed when you withdraw. The idea is you don’t know what tax rates will look like in 20-40 years when you retire… if your tax rate is the same when you invest vs. when you withdraw, both options are completely equal. But if your tax rate is higher or lower when you retire, then when you put the money in, one option would be better. Having diversified tax exposures is hedging against either scenario.

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Yes. But if your tax rate is identical during investment and withdrawal, then Roth and traditional 401k’s are equivalent. It’s can be a little counterintuitive but if you do the math, they are the same. This assumes you invest “less” in a Roth because it’s after tax funds… you already paid the tax.

You should be using Roth 401k. Significantly better

D3 is correct. I used to do all Roth, but after talking to an accountant all I can say is traditional is better for my situation

To reduce taxable income…

For shits and giggles, let's say you are just shy of retirement age. You make $110k a year as an individual; we'll call you A. Person B makes the same as you. You put $10k into a 401k and B puts $10k into a taxable account. After 10 years, you both retire. The market has been good to you both, so your portfolio is worth $150k instead of just the $100k you put in. You both get a solid amount of social security - say, $36k a year - and you decide to pull out $75k from your investments. Over the ten years, you put $100k into your 401k and saved $24k in taxes. Now, you take out $75k a year. Taxable income is $93k, and you pay $29,212 in taxes on your 401k withdrawals over the two years. Person B pays the $24k up front and then pays $15,915 in long term capital gains taxes over the two years. Ultimately person B pays $10k more by choosing a non tax advantaged option. In my little scenario, the Roth 401k would be the winner, since you pay $24k up front and $0 on the back end. In reality, it's good to have a mix so that you can choose your tax exposure in retirement.

This isn’t a perfect comparison, because an initial $10k investment pre-tax isn’t the same as $10k post tax. If you want to compare, you should do $10K pre-tax and $7500 post tax, assuming a 25% tax rate (or pick what marginal tax rate you want). That’s a more accurate comparison.

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