What is a good reason to NOT max out a 401k? - Page 4

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post #46 of 49

9/19/12 at 4:39am

Eason
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Why not to: You are young and poor and have a low amount of money to save each month

or

You might move to another country.

Both true in my case

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post #47 of 49

9/19/12 at 10:14am

gettoasty

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You have a point there in both cases. I guess in my case I am taking the more "traditional" route 1-3 year at first job before making a change.

FWIW I do not defer to my SIMPLE-IRA plan option because I think it sucks. 2 year wait before you are allowed to move. Although I was told that there are 6-7% annual return (net of fees?)

post #48 of 49

9/19/12 at 10:41am

Liquidus

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Quote:

Originally Posted by otc

Half roth/half regular would basically just be sort of a hedge. Since the limits on 401k stuff are usually based on pre-tax traditional contributions (and since they are a smaller hit to your paycheck due to their pre-tax nature) I was thinking you could get your full employer contribution in pre-tax funds and then throw an extra 5k into a Roth while you are still eligible.
Maybe I am not quite understanding your situation here but basically your priorities for investing should be:
1: 401k up to employer match limit (I suppose this can be roth or trad...as long as you are getting the max match)
2: Roth IRA if eligible (otherwise traditional) up to the 5K annual maximum.
3: 401k to the legal limit.
4: Regular taxable investments.

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.

post #49 of 49

9/19/12 at 1:39pm

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Quote:

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.