Originally Posted by Liquidus
Can someone explain to me, intuitively, what is the benefit of investing in a 401k vs a taxable brokerage account? Assume no match, same tax rates both when contributing and withdrawing, and no early withdraws from the brokerage account. I've read this
blog post and it seems that there are two reasons:
401k investments are only taxed once, at your income tax rate, on withdraws.
Taxable accounts use post-tax dollars and realized gains are taxed again at a capital gains rate at withdraw.
You seem to have explained it already.
401k, you only pay at withdrawl.
Roth IRA/401k, you only pay at deposit.
Trad IRA, you pay at both ends if you are over the income limit, otherwise you pay at withdrawl.
Normal trading account: You pay on your income. Then you pay on any dividends. Then you pay full tax rate on REIT dividends. Then you pay on realized gains (and thus you pay on trading churn). You keep paying all of these taxes until you want the money, at which point you sell and again pay taxes on appreciation.
That's why the Trad IRA is probably worth its annual max even if you are over the income limit...all the dividends and realized gains in the middle can really add up.