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Hi Everyone,
I have recently created a stock portfolio via thru my Fidelity brokerage thanks to the MF guidance and plan on investing into it every month in addition to index funds I own thru my Vanguard brokerage account.
Both mine and my wife’s companys offer 401ks but they do not match.
I am aware of the tax shelter they provide . HOWEVER, I have chosen to opt out and invest into the portfolios that I have created which give me more room to invest as I please in the companies I want with no withdrawal penalties.My goal for these accounts is LONG TERM

Any thoughts????? are GREATLY APPRECIATED
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No. of Recommendations: 2
Both mine and my wife’s companys offer 401ks but they do not match.
I am aware of the tax shelter they provide . HOWEVER, I have chosen to opt out and invest into the portfolios that I have created which give me more room to invest as I please in the companies I want with no withdrawal penalties.My goal for these accounts is LONG TERM

Any thoughts????? are GREATLY APPRECIATED


401(k)s do offer a good tax break, or if they offer the option for a Roth subaccount, they offer a great opportunities to put money away that will be tax free when withdrawn, as long as you wait until you are 59 1/2 and have had an account for at least 5 years. That said, if you're not happy with the fees and/or investment selections, and there is no match, then it's not an unreasonable decision to not invest in a 401(k). That said - if you don't plan on being with the company for the long term, investing in the 401(k) and rolling it over once you leave the company is also a reasonable strategy, if you want the tax break.

That said, I would strongly suggest that before you invest in taxable accounts, you and your wife each max out a Roth IRA, if you are eligible If you aren't eligible because your income is too high, then you may be able to do backdoor Roth contributions, assuming you don't have any Traditional IRAs in your name. (Please note - making contributions to a Traditional 401(k) can help you lower your income in order to be eligible for a Roth IRA.) In an IRA, you have nearly as much investment flexibility as you do in taxable brokerage accounts. And if you need to make withdrawals, you can always withdraw up to the amount that you contributed to a Roth IRA (but not the earnings) tax and penalty free, so Roth IRAs are more flexible than Traditional IRAs.

I would also question why you are so worried about penalties if your goal for these accounts is truly 'LONG TERM'. There are several different strategies that will allow you to make penalty free withdrawals, especially if you won't be withdrawing for a long time.

AJ
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Long term buy and hold can be an excellent strategy in a taxable account. You pay taxes only when you sell (or on dividends) and then at capital gains rates.

Of course, if you decide to sell the tax bill can be painful. Tax preferenced accounts do let you switch investments from time to time without paying taxes. In a volatile stock market that can be an advantage.

If you are a disciplined saver, either way (or both) can work. 401k payroll deductions tend to be painless and automatic. They fit right into your regular budget. 401k allows accumulation of larger sums than Roth IRA or IRA. So 401K and then rollover at some time in the future can be best.
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I am aware of the tax shelter they provide . HOWEVER, I have chosen to opt out and invest into the portfolios that I have created which give me more room to invest as I please in the companies I want with no withdrawal penalties.My goal for these accounts is LONG TERM

Put some long-term money in 401K.
Use the cheapest broad-based inded funds or ETFs that your/wife's 401K's offer.
Believe me, nobody here including you knows how to pick individual stocks for the long term.
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No. of Recommendations: 1
Both mine and my wife’s companys offer 401ks but they do not match.
I am aware of the tax shelter they provide . HOWEVER, I have chosen to opt out and invest into the portfolios that I have created which give me more room to invest as I please in the companies I want with no withdrawal penalties.My goal for these accounts is LONG TERM

Any thoughts????? are GREATLY APPRECIATED


If there's no matching, there's little advantage to a 401k over a regular IRA if you're able to put the same amount into either one. That may not be true because:
-The maximum amount you can put into an IRA is $6,000 ($7,000 if you’re >age 50) vs. $19,500 ($26,000 if you're >50) for the 401k,
-You intend to accumulate enough to send to the IRA every few months, and just can't get that much together, vs. the 401k money coming out of your check so you never miss it and don't have to "come up with it."

Also, if you invest in stocks and are fairly successful, you can minimize taxes each year by not selling or balancing gains against losses (although you can't do much about dividends). And, compared to a 401k or IRA, when you do cash out and spend the money, it will be taxed at the more attractive long term capital gains rates than the ordinary income tax rates of the 401k/IRA. Of course, the laws could change between now and your retirement and the lower cap gains rates could go away. PLUS, there's a rate better than the cap gains rate, and that's zero. Compare your after-tax strategy to the other two:
1. NO TAX ADVANTAGED ACCOUNT: No tax break now. Invest after-tax money in stocks, pay capital gains rates on the growth.
2. REGULAR IRA/401k: Tax break now (which should leave you with more money to invest). Invest pre-tax money in stocks, pay regular income taxes rates on the growth.
3. ROTH IRA/401k: No tax break now. Invest after-tax money in stocks, pay no taxes on the growth.

Clearly, #3 is better than #1, at least up to the Roth IRA limit. And even though the Roth rules could change, that's much less likely than losing the cap gains rate, or simply ALL rates going up across every bracket.

You can have your Roth IRA at Fidelity or Vanguard, and invest in nearly everything you'd otherwise be investing in outside of tax-advantaged accounts. (You usually can't invest in individual pieces of real estate or your small business or stuff like that in an IRA.)
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