Should I invest in 401k?

Apple
sfbay1

Go to company page Apple

sfbay1
May 2, 2021 215 Comments

I somehow don’t buy the idea of 401 contributions, I think it makes more sense to self invest in income producing assets rather than let it sit untouched for another 30-35 years . Wondering what others think.

Came across this article that made me feel I’m not alone - https://cadehildreth.com/why-401ks-are-a-bad-idea/

Household TC : 450k

#personalfinance #investments #401k #ira #tax #money #retirement

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  • Amazon
    gg no re

    Go to company page Amazon

    gg no re
    everyone is wrong here. 401k is worth because it's tax advantaged account. employer match is nice, but even without, you should still invest. IRA is also a tax advantaged account. that means either your gains (roth ira) or your initial deposit (401k) is untaxed. personal, general stock purchase (e.g. via robinhood), you get taxed on both.
    May 2, 2021 9
    • Nutanix
      Topiary

      Go to company page Nutanix

      Topiary
      gg is absolutely right on almost all counts here. The main benefit of a 401k is tax-free GROWTH, which can make a huge difference over a extended time period. No other investment category save Roth or regular IRA has this advantage.

      However, for people who aren’t subject to Roth IRA phaseouts, it may make sense to look at whether and how to split your retirement money between the two. With Roth, you put in after tax money and you will never be taxed on that money if you take it out after the stipulated age threshold. Further, you are not required to take money out of the Roth account after a certain age (Required Minimum Distribution?), which may also be useful.

      Finally, there are robo advisors who can also invest your non retirement money (I.e, taxes due every year) tax efficiently. You can invest in them as well.
      May 4, 2021
    • Microsoft / Eng
      Tan90

      Go to company page Microsoft Eng

       Tan90
      401k roth is my friend. Gives me some freedom to withdraw if needed. When I think the politics of taxation is getting nasty I could withdraw with lesser penalty.
      May 4, 2021
  • You are getting the free money contributed by your company. Which is already doubled your return in a relatively stable market. I don’t see why you shouldn’t make the move.
    May 2, 2021 3
  • eBay
    o-N-o

    Go to company page eBay

    o-N-o
    Would investing less than 10% of your pretax income for your retirement hurt your lifestyle? If not then max the mf out and get the free money as well.
    May 2, 2021 1
  • You’re deferring taxes for decades.
    Employer match or not:
    May 3, 2021 5
    • Uber
      ♾️♾️

      Go to company page Uber

      ♾️♾️
      True if you decided to withdraw everything in 1 year. But withdrawing for example 80k (joint tax currently 12%) from a 401k per year would likely be much less in taxes.

      principal * max rate + growth * capital gains rate

      vs

      yearly withdrawal of 80k at a very low rate

      There are obviously many situations that would make this much more complicated. But having a 401k gives you some good options for minimizing your tax later when you don't have income.

      Agreed with the tax rates, hope they don't increase the capital gains too!
      May 3, 2021
    • AT&T
      OP = sus

      Go to company page AT&T

      OP = sus
      @Tableu that’s true, but you’re paying higher taxes on money you wouldn’t even have in the non-401k situation.

      Let’s say you pay 35% in taxes. In 401k you have $100, in non you have $65. 8% returns over 30 years is basically 10x, so now you have $1000 vs $650. You pay 35% on the $1000 > $650, you pay capitals gains on the gains of the $65, $650 > $562. You gained a little over 15% by putting in 401k.

      This is entirely ignoring the fact that you likely won’t be paying 35% income tax at 60+, so the gains are usually higher.
      May 4, 2021
  • Intuit
    escape key

    Go to company page Intuit

    escape key
    if you're a high earner and low consumer you should absolutely max your 401k. cut 20k off your highest tax bracket and pay nearly $0 tax on it in retirement if you're just covering expenses, which can easily fall below the poverty line and have $0 tax liability if you do it right.
    May 2, 2021 7
    • Whattt? I invest in Roth IRA so that I don't have to pay any taxes when I withdraw. I thought in traditional IRA you have to pay taxes based on your latest tax bracket. Can someone help me understand why would people invest in Roth IRA then? Any sources from where I can easily understand the details. Thanks!
      May 4, 2021
    • Intuit
      escape key

      Go to company page Intuit

      escape key
      low earners early in life invest in Roth. high earners early in life invest in 401k. there are some tricks for making Roth contributions as a high earner, but generally speaking you should only be investing in Roth if you think you'll NEED significantly more in a small period of retirement than you needed during your working years. that is, you have a lower tax burden today than you will in retirement for that particular lot of money.

      401k is taxed in retirement just like income. only withdraw 30k in a year, and after 12k standard deduction you'll pay 10% tax on the first 9k, and 12% on the remaining 9k (18k AGI) (also using all 2021 brackets and present value dollars). it has nothing to do with your working years. it's just ordinary income in each tax year it's consumed.
      May 4, 2021