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Hey, I found a post on the RE Home Page that addresses the topic of maxing out tax deferred acounts vs. taxable accounts. What do you guys think about this ?

This post is by workwayless:

http://boards.fool.com/Message.asp?mid=21438606

I returned to work after retiring and my current savings strategy are totally different than during my pre-FIRE accumulation days.

In the past, I tried to accumulate as much tax deferred savings as possible—especially the kind that reduced my taxable income. Therefore I maxed out my 401k contributions and the bulk of the rest of my savings were taxable funds. I didn't put much money into traditional or Roth IRAs.

There have been tax changes since I last worked and next year I'd be able to take advantage of a “catch-up” clause to make higher 401k contributions than ever before.

However given my current situation, I don't think that maxing out my 401k is still a good idea. The whole purpose of the taxed deferral component of defined contribution programs was that most people would enjoy lower tax rates during retirement than in their working years. After reading experts like Scott Burns, I now question whether or not that will still be true.


So here's my current strategy:

I will only contribute enough to my 401k to take full advantage of my employer's match and to reduce my taxable income to so that it's under the maximum for Roth IRA eligibility.

The rest of my money will go into purchasing real estate, Roth IRA contributions and conversions, and of course taxable savings. I don't know what the percentages will be because it depends on how quickly I purchase the new real estate.


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