UnThreaded | Threaded | Whole Thread (42) | Ignore Thread Prev | Next
Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Re: Beginning Retirement Investing Date: 2/20/2013 12:41 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 4
Why no more?ive maxed out my 401k since I was a year older than the op and done quite well.

IIRC, the theory is that upon withdrawl 410(k)s are taxed as ordinary income which is typically higher than capital gains rates, so there is benefit to investing those dollars beyond the employer match outside the 401(k). In other words, if you don't contribute to the 401(k) beyond the match and invest somewhere else, you're betting that upon withdrawl you'll get taxed at the 20% long term capital gains rate instead of the roughly 25% income tax rate you're paying right now. If that's the way it actually works out, then that's the smart thing to do.

However, IMO the ease of investing in a 401(k) is worth a lot. Savings that happen automatically are good. Plus they are pre-tax dollars, which means you have the ability to contribute more dollars than you otherwise could.

Also for planning purposes, it is a reasonable assumption (but impossible to say for sure) that your tax rate in retirement will be lower than your tax rate while working. It is entirely possible that your income tax rate will be lower than the capital gains rate. In that case, you screwed yourself by not contributing to the 401(K). So there is a bird-in-the-hand advantage to getting tax savings right now as opposed to a theoretical savings later.

My advice is max out your 401(k) and your Roth, and put as much as you can into a regular investment account. Remember how much you paid for this advice.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (42) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement