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<< BUT, you can defer taxes on non-401k capital gains by buying QQQ or SPY or an equivalent (in a regular taxable account) and not selling. Sure, you still have to pay the income tax on the money you put it, but you can defer the tax on the gains as long as you want. >>

Seems to me this actually argues *against* a taxable account. Assuming a 28% tax rate (both currently and at retirement), a CAGR of 10%, and an initial investment of 10K, I see this:

Tax-deferred account:
Initial investment: $10,000
In 30 years : $174,494
Less taxes : $125,636

Taxable account:
Initial investment: $10,000
Less taxes : $7,200
In 30 years : $125,636

However, in the second case you then have to pay long-term capital gains on the $115,636 which at 20% means you would be paying $23,127 in additional taxes.

(Obviously, if your after-retirement tax bracket is higher than your initial one, you could come out ahead.)

As far as early withdrawals, in the tax-deferred account you would pay the 10% penalty, but in the taxable account you would pay the 20% LTCG. Seems like you would still come out ahead (if you absolutely had to do it).

I totally agree with you, however, regarding the problem of being restricted to an employer's choices in 401K investments (as I well know! Oh, when will they finally allow self-directed 401Ks???).

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