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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: And more of the same bad advice Date: 7/16/2002 5:09 PM
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I hope you don't mind me jumping over here from the retirement investing board.

I don't mind at all! The more the merrier.

While the assumptions give you more back at the end, you have given up some flexibility in the use of the money during the assumption time period.

Absolutely. You cannot get the favorable tax status without some sacrifice! :) Seriously though, I think bigger than the loss of flexibility is the potential loss of adequate investments. In my case, my 401k is with Vanguard where I would keep the money regardless...so I use the same investments and the costs are the same. If the costs are high for another person doing these calculations, they might need to use a lower return for one side of the equation than the other.

Also, I could argue that the decrease in flexibility leads to an increase in "safety" for the person long-term. By making it harder to get at the money, the person might be less likely to spend their retirement money unnecessarily. So this issue is a balancing act in many regards.

The 401K also requires distributions at 70.5

Yup...something I acknowledged in my post.

...and doesn't allow(depending on the schizo nature of the estate tax and cost basis thing) you to pass on the captial gains untaxed.

This is a definite negative to the 401k compared to after-tax investments. However, I am far less worried about leaving a large inheritence than planning my retirement. I will make sure my [future] children are taken care of...but I'm not going to short-change my personal possibilities to make sure they get even more.

(Of course, I might not be a fair "general" comparison in this regard since I can afford to max out my 401k at $11,000 and max out the Roth IRA and still invest/save additional money after-tax. So I fully expect to give my kids seed money -- such as funding Roth IRAs for them when they have summer jobs and other savings for their short- and long-term prosperity -- but I also plan to either spend my retirement money or leave the bulk of it to worthy causes.)

I would never argue against funding a 401K up to the point of the match. After that, I would suggest thoughtful review of one's own situation.

I agree 100%. This is why I run the numbers periodically. I just have never seen a situation -- for me -- where the taxable account was even close to the 401k. Down the road, this might change. But for the time being, I will be maxing out my 401k...which means with my contributions and my company match, I am puting away 22% of my salary for my retirement...plus my Roth IRA...and saving for a house.

ACME
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