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Generally pretax 401K (taxed at ordinary income tax rates in retirement) is mathematically identical to Roth IRA (after tax, then not taxed in retirement) (when income tax rates are the same now as in retirement). The best you can do in a taxable account is long term buy and hold, which is after tax and when done successfully taxed at capital gains rates.

So clearly pretax 401K is preferable to LTBH investing. Plus the 401K can be rolled over the an IRA and converted to a Roth at some time in the future.

As the previous poster pointed out, a spread sheet will tell you if the fees are prohibitive. But 1.6% is still small compared to the 10 to 11% return you expect to get from an S&P 500 Index fund. Hence, I would be inclined to stick with the 401K at least to the pretax max.
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