1099 work offered w2 is there a catch?

[michaelrack]

They are taxed when you sell or on your dividends. How is that a bad thing when you actually have the freedom to move your money around or even withdraw it from the stock market in downfalls as opposed to a 401K when you watch it tank and then figure out if you want to slap another 10% penalty on it. Which is why it's very misleading to suggest you will have the same return on a 401K vs a regular investment account.
All of that while you get slapped with much higher fees in mutual funds with much less flexibility.

​

You could just move from a stock fund to money market in a 401k in the event of a downfall. The transaction fee isn't that much in most 401k's

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[Merovinge]

You could just move from a stock fund to money market in a 401k in the event of a downfall. The transaction fee isn't that much in most 401k's

You could but trying to time the market is a terrible idea. Particularly for an MD that will never have better information than the top level financiers of the world.

You do NOT need to pull all your money from a 401k the day you retire like seems to be implied above. Draw down strategies are very complicated but almost any MD with a real retirement plan will have a significant taxable account, backdoor roth that was funded every year while working, and a maximized 401k from every year of working. This allows one to play with the tax buckets to maximium effect.

 

[Merovinge]

I think I'm touching on real anxieties (which I understand). There is an inherent risk in 401Ks. You're leaving your money with little access and making a set assumptions that we simply don't know if they will hold or not. It's perfectly reasonable to expect a heavy downturn at the time close to retirement where much of your earnings can be cut. It's not a very safe assumption that taxes will remain at the current rate or lower. Wars, pandemics, economical disasters do not happen every 10 years (401Ks have been available for really 30 years). You're losing access to a big stream of money that you otherwise could invest in other avenues. You're betting your future on the stock market and hedge funds managers. Seemed like a great idea in the 80s, especially if that meant killing pension plans and giving more leverage for corporations.

You aren't touching on any anxieties, you are just only partially informed on a topic that you think you know a lot about. Talking about timing the market, using alternative investments, or the risk of a downturn in your 401k prior to retirement clearly shows the lack of knowledge you have on this subject.

Having a very comfortable retirement as a MD in the US is very straightforward except in highly atypical family situations.

Step 1 - Pay off any loans within 5 years of becoming an attending or have a PSLF plan and execute it (this would be at max 7 years after finishing if you did a 3 year residency)

Step 2 - Save 20% of your gross paycheck, max backdoor roth, max 401k/403b and pretty much any other retirement option offered by your particular employer. All remaining money goes into a taxable account, buy the US or World stock market with this at near 0% fee.
Step 2.5 - Enjoy spending the rest of your money, or save a higher percent and cut back hours later in career or retire early

Step 3 - As you near retirement (maybe 5-10 years prior), see a fee only (pay by the hour) financial advisor, figure out what fixed income structure you should use now and through retirement. Determine any roth conversions and come up with a basic drawdown strategy.

You can fit the whole plan on a fricking index card.

 

[DoctwoB]

Complex Tax Implications ​

Arguably the most highly touted 401(k) plan attribute is the pre-tax treatment of invested cash flows. This feature is important because if you have more money to invest upfront, you should have a greater opportunity to enhance your returns down the road.




However, before accepting the premise that pre-tax investing is an investment advantage, keep in mind that when you withdraw your money from your 401(k) plan, the entire amount will be taxed at your personal income tax level.




This may be a disadvantage if your investment strategy achieves substantial long-term gains that could have been taxed at the lower capital gains tax rate level. Since these gains will be taxed as income under a 401(k) plan structure, your perceived pre-tax advantage on the front end will be offset to a certain degree by the tax disadvantage on the back end.

The fact that you are paying income tax rather then LTCG on 401k withdrawals is correct, but you are forgetting the fact that it is only taxed once rather then twice.

Lets look at some numbers as an illustration. Again say you are at a 40% marginal tax rate while working and the same in retirement (which is unlikely again, but for the sake of argument)

I have 100k and I put it all in my 401k. Say it doubles. Now I have 200k. I withdraw it in retirement at an average (not marginal!!!) tax rate of 25-30%, lets say 30 to be harsh. I now have 140k of post-tax money

You have that same 100k and choose to pay 40k in taxes and put 60k in your brokerage account. It also doubles as it was invested in the same mutual fund for the same time period. Now you have 120k. You withdraw it and pay 15-30% in LTCG (depending on income and state), say 15% to be kind. You now have 102k of post-tax money. That is also overly optimistic, because it negates tax drag from LTCG on dividends or any taxable events from switching stocks or funds.

There are perks to having it in the taxable account, most notably you can access the money whenever you need it.
There are perks to having it in the 401k, most notably it is protected from your creditors. Also, maybe you die with money still in the account, and your heirs can withdraw it at very low rates, so even few tax dollar paid.

In practice, most docs will have enough money to do both, where you max out your 401k, backdoor roth, and still have some money to invest in taxable, which also serves as a backup rainy day fund to get the money if you really need it. But it is foolish for docs to not take advantage of their tax and asset protected space

 

[sloh]

You aren't touching on any anxieties, you are just only partially informed on a topic that you think you know a lot about. Talking about timing the market, using alternative investments, or the risk of a downturn in your 401k prior to retirement clearly shows the lack of knowledge you have on this subject.

Having a very comfortable retirement as a MD in the US is very straightforward except in highly atypical family situations.

Step 1 - Pay off any loans within 5 years of becoming an attending or have a PSLF plan and execute it (this would be at max 7 years after finishing if you did a 3 year residency)

Step 2 - Save 20% of your gross paycheck, max backdoor roth, max 401k/403b and pretty much any other retirement option offered by your particular employer. All remaining money goes into a taxable account, buy the US or World stock market with this at near 0% fee.
Step 2.5 - Enjoy spending the rest of your money, or save a higher percent and cut back hours later in career or retire early

Step 3 - As you near retirement (maybe 5-10 years prior), see a fee only (pay by the hour) financial advisor, figure out what fixed income structure you should use now and through retirement. Determine any roth conversions and come up with a basic drawdown strategy.

You can fit the whole plan on a fricking index card.

Can sometime sticky this post?

Oh. And don’t try and time the market.

 

[G Sheb]

The fact that you are paying income tax rather then LTCG on 401k withdrawals is correct, but you are forgetting the fact that it is only taxed once rather then twice.

Lets look at some numbers as an illustration. Again say you are at a 40% marginal tax rate while working and the same in retirement (which is unlikely again, but for the sake of argument)

I have 100k and I put it all in my 401k. Say it doubles. Now I have 200k. I withdraw it in retirement at an average (not marginal!!!) tax rate of 25-30%, lets say 30 to be harsh. I now have 140k of post-tax money

You have that same 100k and choose to pay 40k in taxes and put 60k in your brokerage account. It also doubles as it was invested in the same mutual fund for the same time period. Now you have 120k. You withdraw it and pay 15-30% in LTCG (depending on income and state), say 15% to be kind. You now have 102k of post-tax money. That is also overly optimistic, because it negates tax drag from LTCG on dividends or any taxable events from switching stocks or funds.

There are perks to having it in the taxable account, most notably you can access the money whenever you need it.
There are perks to having it in the 401k, most notably it is protected from your creditors. Also, maybe you die with money still in the account, and your heirs can withdraw it at very low rates, so even few tax dollar paid.

In practice, most docs will have enough money to do both, where you max out your 401k, backdoor roth, and still have some money to invest in taxable, which also serves as a backup rainy day fund to get the money if you really need it. But it is foolish for docs to not take advantage of their tax and asset protected space

This is simplistic to say the least.
You're assuming similar growth. Not accounting for fees. Not accounting for deductions while you're working...etc..et
We've already went though this.
The idea that 401K is at an inevitable advantage is not true at all. As the very neutral (and in fact 401K-biased) article from Investopedia says, if you're actually counting on big gains you would lose with 401k since your gains are taxed at the income rate while they are taxed at the capital gains rate in a taxable account. The calculator I posted lays this out as well. Tax-deferred aren't at an inherent advantage. It is not straightforward. Of course no one is going to tell you this straight to your face while you are planning for retirement.
How do you even quantify the lack of access and the risks associated with a 401K account that you smell and don't touch. (it is really an account that you hold along with the government). You're betting on many variables in the future. Nobody can see when a black swan is coming until, well, it's there.

I get why the index-card thing is appealing. It's nice not to deal with the headache of actively investing and saving and leaving it for the advisors (who are racking up nice gains). It might work for you. Again, not saying you should not invest in a 401K. But there is a lot of bs propaganda about the necessaity of maximizing 401Ks and how critical this is for retirement. It might work for you but is not at all a hard rule and may lose you a source of liquidity where you can get more accessible and better investments. Think real estate. Instead of buying and selling in 5/6 years (so that you buy again), why not think of holding and renting. Why not save for an investment property in a good location with bankable rent? You don't want to deal with the headache of renting? I get that, but that does not mean a universal advice of 'have a 401K and maximize it'.

We've also not addressed the elephant in the room. If you're employed on a W2 of course there's the added pressure to get the 401K for the 'free money' the employer is going to give you. The matching/vesting system is akin to holding people hostage (while laying all the responsibility on employees to fund their retirement). Frankly, I think it would be wiser to divert energy to get back the pension system as opposed to defending what we have now - a system clearly designed to benefit the big corporations.

 

[Merovinge]

This is simplistic to say the least.
You're assuming similar growth. Not accounting for fees. Not accounting for deductions while you're working...etc..et
We've already went though this.
The idea that 401K is at an inevitable advantage is not true at all. As the very neutral (and in fact 401K-biased) article from Investopedia says, if you're actually counting on big gains you would lose with 401k since your gains are taxed at the income rate while they are taxed at the capital gains rate in a taxable account. The calculator I posted lays this out as well. Tax-deferred aren't at an inherent advantage. It is not straightforward. Of course no one is going to tell you this straight to your face while you are planning for retirement.
How do you even quantify the lack of access and the risks associated with a 401K account that you smell and don't touch. (it is really an account that you hold along with the government). You're betting on many variables in the future. Nobody can see when a black swan is coming until, well, it's there.

I get why the index-card thing is appealing. It's nice not to deal with the headache of actively investing and saving and leaving it for the advisors (who are racking up nice gains). It might work for you. Again, not saying you should not invest in a 401K. But there is a lot of bs propaganda about the necessaity of maximizing 401Ks and how critical this is for retirement. It might work for you but is not at all a hard rule and may lose you a source of liquidity where you can get more accessible and better investments. Think real estate. Instead of buying and selling in 5/6 years (so that you buy again), why not think of holding and renting. Why not save for an investment property in a good location with bankable rent? You don't want to deal with the headache of renting? I get that, but that does not mean a universal advice of 'have a 401K and maximize it'.

No one is leaving anything to advisors, if you read my post it specifically mentions using a total market index (e.g. VTSAX). I recommend against an advisor for anyone willing to put in a few dozen hours, plug through some white coat investor and then read an index card. Due to the laws requiring 401k's offered by employers to be fiduciary's, the fees are very low on equivalent funds at most employers. I know this because my last employer changed 401k offerings to get us a 0.05% expense ratio total US market index fund while I was employed there (from some 20+ basis point garbage before).

Tax deferral is an inherit advantage when you are at the top tax bracket and will withdraw at a substantially lower bracket. Which is what essentially everyone does by mixing withdrawal from taxable, roth and 401k accounts. You also get tax protected growth to juice the returns further (as well as creditor protection in many states).

If you want to invest in real estate, or African oil schemes, or whatever you think you know better than people who do this full time and many of which have PhD's from MIT fueling their algos, then you can easily do this with the money you have leftover after maxing your 401k. As an MD you should have excess money beyond the employee contribution. If you are implying there is risk of not being able to withdrawal your personal funds from your 401k due to governmental instability in the US, then certainly any real estate or other US based investments will be meaningless because the country will have went the way of the Roman Empire.

 

[calvnandhobbs68]

I think I'm touching on real anxieties (which I understand). There is an inherent risk in 401Ks. You're leaving your money with little access and making a set assumptions that we simply don't know if they will hold or not. It's perfectly reasonable to expect a heavy downturn at the time close to retirement where much of your earnings can be cut. It's not a very safe assumption that taxes will remain at the current rate or lower. Wars, pandemics, economical disasters do not happen every 10 years (401Ks have been available for really 30 years). You're losing access to a big stream of money that you otherwise could invest in other avenues. You're betting your future on the stock market and hedge funds managers. Seemed like a great idea in the 80s, especially if that meant killing pension plans and giving more leverage for corporations.

The only anxiety here is that you don't seem to understand what the heck a 401k is. It's just an investment account. You can do most of the same things with a brokerage account (so the weird statement that 401ks have been available for really 30 years doesn't matter). You should be well insulated from a "heavy downturn" when you retire because most people will tell you to shift out into different investments 5ish years out from retirement (so moving from a growth/stock/risky to a income/bonds/lower risk portfolio).

I guess I don't understand what your alternative investments are here that you'd prefer people park their money in that outperform so consistently they're worth the risk.

 

[G Sheb]

The only anxiety here is that you don't seem to understand what the heck a 401k is. It's just an investment account. You can do most of the same things with a brokerage account (so the weird statement that 401ks have been available for really 30 years doesn't matter). You should be well insulated from a "heavy downturn" when you retire because most people will tell you to shift out into different investments 5ish years out from retirement (so moving from a growth/stock/risky to a income/bonds/lower risk portfolio).

I guess I don't understand what your alternative investments are here that you'd prefer people park their money in that outperform so consistently they're worth the risk.

Same thing, except you get slapped with a 10% penalty and hefty taxes on all of your money (contribution and gains) if you touch it without approval? (ignoring all the other limitations for now). You don't think that matters how you run your investments? The government literally owns part of your account.

Of course the 'weird' statement that 401K has been only around for 30 years is not really weird when you think it has not been really tested as a primary vehicle for retirement funding.

 

[G Sheb]

If you want to invest in real estate, or African oil schemes, or whatever you think you know better than people who do this full time and many of which have PhD's from MIT fueling their algos, then you can easily do this with the money you have leftover after maxing your 401k. As an MD you should have excess money beyond the employee contribution. If you are implying there is risk of not being able to withdrawal your personal funds from your 401k due to governmental instability in the US, then certainly any real estate or other US based investments will be meaningless because the country will have went the way of the Roman Empire.

I laughed at this, only because you think it's prudent to follow the advice of someone simply because they are doing this full time and *gasp* graduated from MIT.
If there's one thing that is truly decadent of our culture is the rampant conflict of interest. I'm sure you're aware of that in medicine and especially psychiatry. But it really pervades every system out there, and I'd be even more concerned if they are embedded in an elite institution and do it's their main source of income.
It's not that people aren't smart or ethical. Sometimes the conflicts of interest run so deep in the system.
We were all taught at a certain point to be generous with opioids for patients in the hospital complaining of pain.
Anyways, it's always healthy to look at things with a skeptical eye. I'm not pretending to be a financial guru (and let's face it no one is here - and no one should be coming to SDN for financial advice), but I'm even less convinced after this discussion. People can be free to make their minds.

 

[Merovinge]

I laughed at this, only because you think it's prudent to follow the advice of someone simply because they are doing this full time and *gasp* graduated from MIT.
If there's one thing that is truly decadent of our culture is the rampant conflict of interest. I'm sure you're aware of that in medicine and especially psychiatry. But it really pervades every system out there, and I'd be even more concerned if they are embedded in an elite institution and do it's their main source of income.
It's not that people aren't smart or ethical. Sometimes the conflicts of interest run so deep in the system.
We were all taught at a certain point to be generous with opioids for patients in the hospital complaining of pain.
Anyways, it's always healthy to look at things with a skeptical eye. I'm not pretending to be a financial guru (and let's face it no one is here - and no one should be coming to SDN for financial advice), but I'm even less convinced after this discussion. People can be free to make their minds.

I'm not following the advice of any one person, investing in broad based index funds is based on nobel prize winning economics and heavily researched in peer-reviewed literature.

Using numbers and investing in a 401k is nothing like being generous with opioids. Being skeptical is fine, but it's very easy to access highly varying viewpoints about finances (boggleheads, WCI, etc) and understand their conflicts of interest. For example, WCI makes less money when you just invest in VTSAX and don't use his referrals for real estate investing, yet he still recommends doing exactly this.

There actually is plenty of good financial advice on WCI, you can see a number of posters here who have a solid understanding and were able to show you why you are mistaken. You choosing to read only parts of those posts and ignore others is certainly what you are free to do.

 

[G Sheb]

I'm not following the advice of any one person, investing in broad based index funds is based on nobel prize winning economics and heavily researched in peer-reviewed literature.

Using numbers and investing in a 401k is nothing like being generous with opioids. Being skeptical is fine, but it's very easy to access highly varying viewpoints about finances (boggleheads, WCI, etc) and understand their conflicts of interest. For example, WCI makes less money when you just invest in VTSAX and don't use his referrals for real estate investing, yet he still recommends doing exactly this.

There actually is plenty of good financial advice on WCI, you can see a number of posters here who have a solid understanding and were able to show you why you are mistaken. You choosing to read only parts of those posts and ignore others is certainly what you are free to do.

It's not so easy to understand conflicts of interest. I'm especially skeptical of bloggers who make a name for selling their products. But the worst ones are the financial 'advisers' who make money by selling you 401K products.
I encourage you to read this:

Teresa Ghilarducci: Why the 401(k) is a "Failed Experiment" | FRONTLINE

The 401(k) was never designed with the middle class in mind, and may now be leaving a generation of Baby Boomers without enough to avoid poverty, says the New School economist.

www.pbs.org

She's an academic who actually talks research. Timely, as she goes into a great detail about conflicts of interest. She also makes a very strong point how 401K were never meant as a main retirement vehicle but rather as a supplement for the wealthy who already had saved for retirement.
401Ks are more and more widely seen as failures.
Not sure what points we need to make further.
I've read your posts. It doesn't mean I have to respond to all of the points especially if I have to repeat myself a gazillion time.
Frankly I think the arguments here are pretty weak. People are generally putting deflectors based on their own retirement plans and values to rationalize 401k contributions.
We're just rehashing at this point.

 

[G Sheb]

You could just move from a stock fund to money market in a 401k in the event of a downfall. The transaction fee isn't that much in most 401k's

How did that work out in 2008?

 

[calvnandhobbs68]

It's not so easy to understand conflicts of interest. I'm especially skeptical of bloggers who make a name for selling their products. But the worst ones are the financial 'advisers' who make money by selling you 401K products.
I encourage you to read this:

Teresa Ghilarducci: Why the 401(k) is a "Failed Experiment" | FRONTLINE

The 401(k) was never designed with the middle class in mind, and may now be leaving a generation of Baby Boomers without enough to avoid poverty, says the New School economist.

www.pbs.org

She's an academic who actually talks research. Timely, as she goes into a great detail about conflicts of interest. She also makes a very strong point how 401K were never meant as a main retirement vehicle but rather as a supplement for the wealthy who already had saved for retirement.
401Ks are more and more widely seen as failures.
Not sure what points we need to make further.
I've read your posts. It doesn't mean I have to respond to all of the points especially if I have to repeat myself a gazillion time.
Frankly I think the arguments here are pretty weak. People are generally putting deflectors based on their own retirement plans and values to rationalize 401k contributions.
We're just rehashing at this point.

Do you even understand what much of this article is saying?

What she's saying is that companies shifted to 401ks because they were cheaper than pension plans for the employer (way cheaper) and still allowed them to say they provided "retirement plans". This is a pretty widespread argument and not an invalid one about defined benefit vs defined contribution plans and pros/cons of each of these.

It's also an argument that basically the average worker is very poorly informed about what kinds of funds to place their 401k money into, which is why people's 401ks perform badly (so basically a lack of education on the person's part rather than how terrible inherently a 401k is). And I quote:

"So we know that 401(k) participants don’t invest like a professional would invest. They don’t invest in an appropriately diversified portfolio. They don’t invest in the lowest fee portfolios. …Here’s a fun fact. For many people who just put their money into a 401(k) and never looked at it again, and happened to have picked a low-fee diversified mutual fund, [they] would have done a lot better than the [401(k)] investor that watched the stock trading shows or followed the investment advice and responsibly tried to trade every quarter or every year, because the person who tried to be responsible and follow the advice on the news media or in a pamphlet would actually pay such high trading costs that it would take away from their returns."

Additionally, this article is almost 10 years old. There used to be a much more valid argument as well that some 401k administrators would basically provide very limited bad choices of a bunch of high fee mutual funds. That is much less so the case currently, both my 401ks in residency and fellowship had broad market low fee index funds (Vanguard and Fidelity funds) that you could invest in, along with higher fee actively managed funds.

This is a basically non-existent argument for solo 401ks that you can use to basically invest in whatever you want.

How did that work out in 2008?

Sorry as opposed to what other investment?

 

[calvnandhobbs68]

Same thing, except you get slapped with a 10% penalty and hefty taxes on all of your money (contribution and gains) if you touch it without approval? (ignoring all the other limitations for now). You don't think that matters how you run your investments? The government literally owns part of your account.

The government owns part of your account because they let you put it in there tax deferred and will penalize you if you remove it early? This is like, how all taxes work bro.

Does the government own part of your brokerage account because you have to pay short term capital gains vs long term capital gains when you sell at 11 months vs 13 months?

 

[G Sheb]

Do you even understand what much of this article is saying?

What she's saying is that companies shifted to 401ks because they were cheaper than pension plans for the employer (way cheaper) and still allowed them to say they provided "retirement plans". This is a pretty widespread argument and not an invalid one about defined benefit vs defined contribution plans and pros/cons of each of these.

It's also an argument that basically the average worker is very poorly informed about what kinds of funds to place their 401k money into, which is why people's 401ks perform badly (so basically a lack of education on the person's part rather than how terrible inherently a 401k is). And I quote:

"So we know that 401(k) participants don’t invest like a professional would invest. They don’t invest in an appropriately diversified portfolio. They don’t invest in the lowest fee portfolios. …Here’s a fun fact. For many people who just put their money into a 401(k) and never looked at it again, and happened to have picked a low-fee diversified mutual fund, [they] would have done a lot better than the [401(k)] investor that watched the stock trading shows or followed the investment advice and responsibly tried to trade every quarter or every year, because the person who tried to be responsible and follow the advice on the news media or in a pamphlet would actually pay such high trading costs that it would take away from their returns."

Additionally, this article is almost 10 years old. There used to be a much more valid argument as well that some 401k administrators would basically provide very limited bad choices of a bunch of high fee mutual funds. That is much less so the case currently, both my 401ks in residency and fellowship had broad market low fee index funds (Vanguard and Fidelity funds) that you could invest in, along with higher fee actively managed funds.

This is a basically non-existent argument for solo 401ks that you can use to basically invest in whatever you want.



Sorry as opposed to what other investment?

Dude, I know how to read an article. We also don't need you to summarize it for us.

Quoting a part and make it look like this is all what she said actually shows you either skimmed it or didn't read it. She does not have a positive perspective on all stock funds for retirement.

Here, she puts it quite clearly:

The product was always really built for a different kind of consumer. A mutual fund is really there for people who have already saved enough for their retirement and in an institutional long-term investment product, who have already paid off their house and want to take their money and top off their [security] base for retirement.

It’s not an appropriate product for people who need to save a part of their paycheck every paycheck in order to have money for a long-term need for the rest of their lives.

It's pretty radical and I entirely agree.

 

[calvnandhobbs68]

Dude, I know how to read an article. We also don't need you to summarize it for us.

Quoting a part and make it look like this is all what she said actually shows you either skimmed it or didn't read it. She does not have a positive perspective on all stock funds for retirement.

Here, she puts it quite clearly:

The product was always really built for a different kind of consumer. A mutual fund is really there for people who have already saved enough for their retirement and in an institutional long-term investment product, who have already paid off their house and want to take their money and top off their [security] base for retirement.

It’s not an appropriate product for people who need to save a part of their paycheck every paycheck in order to have money for a long-term need for the rest of their lives.

It's pretty radical and I entirely agree.

Sooo you aren’t getting some of these take home points. Got it.

The argument keeps changing here. Is your problem with the mutual funds composing many 401ks or with the concept of a 401k itself or what?

Again we’re failing to hear your awesome alternative investment here besides apparently throwing (taxed) money in a regular brokerage account and then paying taxes on the long term capital gains. If someone wants to blow your whole tax portion of the argument apart from the bottom may I present the…Roth 401k/403b.

 

[G Sheb]

Sooo you aren’t getting some of these take home points. Got it.

The argument keeps changing here. Is your problem with the mutual funds composing many 401ks or with the concept of a 401k itself or what?

Again we’re failing to hear your awesome alternative investment here besides apparently throwing (taxed) money in a regular brokerage account and then paying taxes on the long term capital gains. If someone wants to blow your whole argument apart from the bottom may I present the…Roth 401k/403b.

ROFL. Well you haven't been paying attention (like that article probably).
I've already said that ROTH accounts are much better and offer more flexibility since the penalty/tax will go only on your gains. Still a downside, but better than tax deferral imo.
I've also suggested real estate. Hold a property for decades if you can. Cash it out or continue to rent. Try to save for an investment property in a high demand area. Don't go into the buy/sell-putdownpayment cycle. I'm considering annuities as well; I find guaranteed income appealing especially if you can afford it, but I need to research this more.
I find all of this better than the time bomb of a 401K. Even a regular brokerage account will offer you more flexibility and autonomy. But apparently you think a 401K is like any other brokerage account because 11/13 months difference in capital gain tax, or whatever. Moving on.

 

[OraclePL]

Funny thing is you can sell investments in a 401(k) just as easily as you can in a brokerage account, in fact it’s even easier because you don’t pay taxes on any of the churn. So I don’t really understand the concept that when the market drops you’re better off having a brokerage account that you can exit out of. Let alone the fact that we’re ignoring all the research that suggests timing in and out of the market will generally come out behind about 66% of the time compared to staying and holding.

A lot of knowledge gaps demonstrated here. But that’s OK, this is clearly not productive anymore. Nice thing about being a physician is when you have a high income, you can get away with many mistakes and still do just fine. Most physicians can have money in taxable brokerage accounts, tax advantaged accounts, and still have leftover to think about real estate and SPIAs if they really want to. Best of luck.

 

[G Sheb]

Funny thing is you can sell investments in a 401(k) just as easily as you can in a brokerage account, in fact it’s even easier because you don’t pay taxes on any of the churn. So I don’t really understand the concept that when the market drops you’re better off having a brokerage account that you can exit out of. Let alone the fact that we’re ignoring all the research that suggests timing in and out of the market will generally come out behind about 66% of the time compared to staying and holding.

A lot of knowledge gaps demonstrated here. But that’s OK, this is clearly not productive anymore. Nice thing about being a physician is when you have a high income, you can get away with many mistakes and still do just fine. Most physicians can have money in taxable brokerage accounts, tax advantaged accounts, and still have leftover to think about real estate and SPIAs if they really want to. Best of luck.

No. that's not what the research shows. If you have a 401K and you are near retirement, you are really screwed if the stock market tanks just when you're about to retire. That happened in 2008. It's not like this never happened before. People saw 30% of their retirement money wiped out. And the longer your money sits in a 401K the more vulnerable you are. If you have a brokerage account (even assuming if you stacked all your retirement there, which is stupid), you can sell off and get out. With a 401K, there;s a huge disincentive to get out (especially with bs propaganda that you should never touch it), and you will be hit with a 10% penalty and income tax on all of your account.
WHat is ignorant is to pretend this is not an issue.

 

[calvnandhobbs68]

No. that's not what the research shows. If you have a 401K and you are near retirement, you are really screwed if the stock market tanks just when you're about to retire. That happened in 2008. It's not like this never happened before. People saw 30% of their retirement money wiped out. And the longer your money sits in a 401K the more vulnerable you are. If you have a brokerage account (even assuming if you stacked all your retirement there, which is stupid), you can sell off and get out. With a 401K, there;s a huge disincentive to get out (especially with bs propaganda that you should never touch it), and you will be hit with a 10% penalty and income tax on all of your account.
WHat is ignorant is to pretend this is not an issue

I mean this statement itself (and the thing about wanting to invest in annuities lol) shows the knowledge gap here.

Have you ever even opened a 401k? Do you actually have a 401k account and with who? I feel like if you had you’d realize you can hold…cash. You can “get out” of the market if you want because you just sell whatever you want and hold it in cash in your account. You don’t get taxed on this money until you WITHDRAW it from the account.

I feel like you just fundamentally don’t understand what a 401k is.

 

[G Sheb]

I mean this statement itself (and the thing about wanting to invest in annuities lol) shows the knowledge gap here.

Have you ever even opened a 401k? Do you actually have a 401k account and with who? I feel like if you had you’d realize you can hold…cash. You can “get out” of the market if you want because you just sell whatever you want and hold it in cash in your account. You don’t get taxed on this money until you WITHDRAW it from the account.

I feel like you just fundamentally don’t understand what a 401k is.

Cash options are not always available. I actually have a 401K and a 403b with two different companies. Both have Roth options so I consider myself luckier than most. None have cash options.
This discussion is obviously very triggering for a lot of people. I don;t think you've demonstrated any knowledge actually. Just a lot of rattling.
Good luck with your investment choices.

 

[calvnandhobbs68]

Cash options are not always available. I actually have a 401K and a 403b with two different companies. Both have Roth options so I consider myself luckier than most. None have cash options.
This discussion is obviously very triggering for a lot of people. I don;t think you've demonstrated any knowledge actually. Just a lot of rattling.
Good luck with your investment choices.

You can hold the equivalent which is essentially a money market fund even if you have a 401k where you can't hold actual cash. Money market accounts are what many brokerage accounts default to as well when you put new funds in. If you can't hold cash or a money market fund....well that's weird and sorry your 401k administrators suck I guess?

This was all started by you talking about how overrated 401ks are, having great difficulty showing exactly why this is besides linking some Frontline article (that has no hard numbers, just someone talking about how they don't like mutual funds basically) and then talking about how your alternative investments would be real estate (a totally different, much more active type of investment vehicle) and annuities (good god).

I think this is all actually pretty relevant to the start of this thread because it just shows the amount of financial illiteracy that's out there and the poor understanding of various retirement investment options when one is employed vs self-employed. I think it's also very telling that you seem to like to use "triggering" like the high school girls I see use it.

 

[G Sheb]

You can hold the equivalent which is essentially a money market fund even if you have a 401k where you can't hold actual cash. Money market accounts are what many brokerage accounts default to as well when you put new funds in. If you can't hold cash or a money market fund....well that's weird and sorry your 401k administrators suck I guess?

This was all started by you talking about how overrated 401ks are, having great difficulty showing exactly why this is besides linking some Frontline article (that has no hard numbers, just someone talking about how they don't like mutual funds basically) and then talking about how your alternative investments would be real estate (a totally different, much more active type of investment vehicle) and annuities (good god).

I think this is all actually pretty relevant to the start of this thread because it just shows the amount of financial illiteracy that's out there and the poor understanding of various retirement investment options when one is employed vs self-employed. I think it's also very telling that you seem to like to use "triggering" like the high school girls I see use it.

It's obvious you're triggered and you're sniping. I'm certainly not the high school girl here.
I mentioned annuities in passing as something I'm researching. The fact that you;d jump on that is very desperate, and very telling.
FTR, I find your contributions pretty lacking in both their scope and substance. That you back it up with this kind of attitude is not really a good look, just so you know.

I find it hilarious that a half dozen posters or something keep replying to something so 'ignorant' and 'misinformed' for days now, with either insults or irrelevant bs. I really wouldn't keep the back and forth if people are not engaged.
Which I understand obviously. If you've planned your retirement along a 401K, feel compelled to max your contributions because your employer gives you a match, this is not going to sound pleasant - still the hyper-defensiveness on this board is a bit overbearing.

 

[Merovinge]

It's obvious you're triggered and you're sniping. I'm certainly not the high school girl here.
I mentioned annuities in passing as something I'm researching. The fact that you;d jump on that is very desperate, and very telling.
FTR, I find your contributions pretty lacking in both their scope and substance. That you back it up with this kind of attitude is not really a good look, just so you know.

I find it hilarious that a half dozen posters or something keep replying to something so 'ignorant' and 'misinformed' for days now, with either insults or irrelevant bs. I really wouldn't keep the back and forth if people are not engaged.
Which I understand obviously. If you've planned your retirement along a 401K, feel compelled to max your contributions because your employer gives you a match, this is not going to sound pleasant - still the hyper-defensiveness on this board is a bit overbearing.

It's not hyperdefensiveness. This is like you coming onto this board promoting using St John's Wart and Ayawascha as the first line treatment of depression and saying you could use SSRI's if you want but they have so many more problems and what about that one time someone got 5HT syndrome and died.

Please look at the number of independent posters and likes for posts above you. I personally know zero of the people IRL that have also responded, I have zero financial interest or conflicts of interest in posting these things. Heck my 401k is like 10% of net worth, hardly a huge part of my current investment profile. I would have put another 500k into it if I could, but alas the government limits this benefit. If everyone is saying something that is contrary to what you think, you can either A) figure out why or B) dig in and ignore all evidence to the contrary. I get choice B is very trendy in the US at this time, but physicians really should be used to choosing path A (at least for medical concerns). You are free to buy real estate and annuities (ironically the product that gives the banker the largest huge return) and avoid the markets but it doesn't make you some revolutionary hero, it just puts you on a different path that is not what most doctors want or should be doing with their money.

 

[G Sheb]

It's not hyperdefensiveness. This is like you coming onto this board promoting using St John's Wart and Ayawascha as the first line treatment of depression and saying you could use SSRI's if you want but they have so many more problems and what about that one time someone got 5HT syndrome and died.

Please look at the number of independent posters and likes for posts above you. I personally know zero of the people IRL that have also responded, I have zero financial interest or conflicts of interest in posting these things. Heck my 401k is like 10% of net worth, hardly a huge part of my current investment profile. I would have put another 500k into it if I could, but alas the government limits this benefit. If everyone is saying something that is contrary to what you think, you can either A) figure out why or B) dig in and ignore all evidence to the contrary. I get choice B is very trendy in the US at this time, but physicians really should be used to choosing path A (at least for medical concerns). You are free to buy real estate and annuities (ironically the product that gives the banker the largest huge return) and avoid the markets but it doesn't make you some revolutionary hero, it just puts you on a different path that is not what most doctors want or should be doing with their money.

:rolls:


It very much is hyper-defensiveness. And it is on full display here again. Like what was the point of that post again? Besides being quasi-abusive and toxic?

Why can a mere difference of opinion trigger these sort of reactions? Remember, I never said don't do 401Ks. I never gave any 'financial advice'. I mentioned I do not know your situations and what works for you and what doesn't. I said my opinion on 401Ks and why I do find a tax deferral scheme problematic ('overrated') for a number of reasons. I gave arguments, others gave as well. Why can't people leave it there?

I happen to be completely unconvinced. I have read all of the counter-argument; I find they are either irrelevant and do not think they address the core issues, which for the sake of closing, I will review. 1) lack of autonomy and flexibility 2) too many variables that people are banking on that we simply don't know if they will hold or not. 3) susceptibility to risk and market volatility especially around retirement time 4) unclear tax benefits especially if your taxes are staying the same or going higher (who knows what the hell they will be in 30 years). I do not think arguments presented above addressed these issues properly. I backed my argument with mainstream articles and number crunching calculators that pretty much all say the same thing.

I never said I am planning on annuities. I said I'm researching them because guaranteed income is appealing and shelters you from stock risk. Hardly revolutionary.
WHy is it even an admission of doing research on something can get these sort of responses? It's really fascinating. I think people see that admitting lack of knowledge and doing research as some sort of weakness, which as a physician, it actually is quite revealing. As a physician, you should also use your head and just because something is unpopular among a half-dozen emotionally triggered posters who have been drinking the Koolaid with likely conflicts (banking on 401K and with an interest to max out to receive employer match), it does not mean it's wrong. It's especially ironic coming from you who was deferring to arguments from authority from full time financial advisors with a degree from MIT. Yeah, as a physician you should have an eye for conflicts of interest.

I realize the longer this drags on, the more ridiculous this is. So I'm done. Sincerely wishing you good luck with all of your investments. Retirement planning is really a big thing.

 

[anonperson]

This is simplistic to say the least.
You're assuming similar growth. Not accounting for fees. Not accounting for deductions while you're working...etc..et
We've already went though this.
The idea that 401K is at an inevitable advantage is not true at all. As the very neutral (and in fact 401K-biased) article from Investopedia says, if you're actually counting on big gains you would lose with 401k since your gains are taxed at the income rate while they are taxed at the capital gains rate in a taxable account. The calculator I posted lays this out as well. Tax-deferred aren't at an inherent advantage. It is not straightforward. Of course no one is going to tell you this straight to your face while you are planning for retirement.
How do you even quantify the lack of access and the risks associated with a 401K account that you smell and don't touch. (it is really an account that you hold along with the government). You're betting on many variables in the future. Nobody can see when a black swan is coming until, well, it's there.

I get why the index-card thing is appealing. It's nice not to deal with the headache of actively investing and saving and leaving it for the advisors (who are racking up nice gains). It might work for you. Again, not saying you should not invest in a 401K. But there is a lot of bs propaganda about the necessaity of maximizing 401Ks and how critical this is for retirement. It might work for you but is not at all a hard rule and may lose you a source of liquidity where you can get more accessible and better investments. Think real estate. Instead of buying and selling in 5/6 years (so that you buy again), why not think of holding and renting. Why not save for an investment property in a good location with bankable rent? You don't want to deal with the headache of renting? I get that, but that does not mean a universal advice of 'have a 401K and maximize it'.

We've also not addressed the elephant in the room. If you're employed on a W2 of course there's the added pressure to get the 401K for the 'free money' the employer is going to give you. The matching/vesting system is akin to holding people hostage (while laying all the responsibility on employees to fund their retirement). Frankly, I think it would be wiser to divert energy to get back the pension system as opposed to defending what we have now - a system clearly designed to benefit the big corporations.

There are several flaws in your argument:

For a physician, a 401k is an easy way to save $20,500 a year with minimal effort. Doing it pre tax is ideal and helps reduce your tax burden.

I'm not sure why a 401k match is looked upon negatively in your post? Different companies have different vesting timelines. My previous employer had a 5 year timeline in order to obtain 100% vesting which is not ideal but my new employer has matching funds vest immediately after 1 year. Not bad for an extra ~$11,000/year.

One thing that has not been mentioned is the significant protection from creditors that a 401k offers through ERISA (Employee Retirement Income Security Act). That is pretty big. IRAs typically do not have that type of protection and it varies from state to state. Over the course of a 20-30 year career, that is a significant amount of money that is shielded from creditors in case something happens.

You do not get this protection with a taxable account.

Real estate is great but requires a fair amount of due diligence and work if you are going at it alone. REITs are a different story. I have nothing against real estate but it isn't for everybody. If you take up residential real estate, you will be a landlord which can be its own headache. You can get a property management company but that will eat into your profits.

And we have seen from the pandemic that state and county governments will not hesitate to put moratoriums on evictions and rental payments.

Any physician should be EASILY maxing out their 401ks yearly while also investing in taxable accounts/IRAs etc. It is only $20,500/year currently. That's less than $2k pre tax per month. This should not be your only investment source but it really is easy.

Can there be some garbage plans with high administrative fees? Sure but I would say in most situations you can have pretty attractive choices. My previous employer had several low cost broad based funds and my current employer has several vanguard products with low ERs. I would guess most jobs have similar set ups.

 

[Merovinge]

I realize the longer this drags on, the more ridiculous this is. So I'm done. Sincerely wishing you good luck with all of your investments. Retirement planning is really a big thing.

The reason it drags on is to make sure impressionable medical students and residents (you know, the purpose of the forum), are not misguided by someone. Despite no one here being a financial advisor, there are a number of people who have significant knowledge of personal finance doing there best to inoculate younger/lesser aware doctors/future doctors from misleading information. If you're done, then it's done and everyone can review both your posts and all the responses in perpetuity seeing the whole picture.

 

[SmallBird]

1) lack of autonomy

Between myself and my spouse, at 6 different employers our 401k's/403b's have consistently offered a range of options, which we were free to choose between, most of which were identical to the funds I picked for my taxable account. I would agree that if someone is being told their only 401k option is a poorly managed fund with a bad mix of assets, that would not be ideal, but I don't know that to be common.

2) too many variables that people are banking on that we simply don't know if they will hold or not.

Which specifically? The white coat investor discusses how large future tax increases would need to be in order to render a 401k a tax-disadvantaged plan. I think that any investment may be more or less attractive in the future based on unpredictable variables. Real estate perhaps more than any other. People buy cryptocurrencies which could all be banned in a few years. They may greatly increase capital gains tax on taxable accounts. Is there a reason to think that future variables are going to be disadvantageous to 401ks in particular?

3) susceptibility to risk and market volatility especially around retirement time

Isn't market volatility a factor of asset mix rather than the nature of the account? Both taxable and non-taxable accounts that include stocks are exposed to market volatility. A 401k that is entirely bonds will not be exposed to market volatility. My own 401k is a 'target date account' which shifts the asset mix to bonds over time, I believe this is an incredibly common arrangement.

4) unclear tax benefits especially if your taxes are staying the same or going higher (who knows what the hell they will be in 30 years).

The tax benefits are significant as money that a physician invests in a 401k would otherwise likely be taxed at the highest or second highest tax bracket, is allowed to grow without any tax on dividends, and when withdrawn will initially be untaxed for the first $20k or so, and then taxed at the lowest tax bracket and so forth (Roth versus Tax-Deferred: The Critical Concept of Filling the Brackets | White Coat Investor). Given that physicians are likely to rely on a mix of taxable and non-taxable accounts, it is possible to sustain an improved lifestyle in retirement while paying much lower effective tax on your 401k distributions than you would have paid on this income in peak earning years.

 

[G Sheb]

FWIW.

Disclaimer: If you are a medical student, resident or fellow, please do not read the dangerous things written below. We do not think you're ready to use your brains independently just yet.

Between myself and my spouse, at 6 different employers our 401k's/403b's have consistently offered a range of options, which we were free to choose between, most of which were identical to the funds I picked for my taxable account. I would agree that if someone is being told their only 401k option is a poorly managed fund with a bad mix of assets, that would not be ideal, but I don't know that to be common.

I was referring to difficulty accessing funds. There's a huge disincentive of withdrawal before 591/2, even when your account is losing in value. The con here is subjective to a large degree, though it would be an objective statement to say that the inability to touch your money for decades would hamper you from channeling it into different investments or even expenses. Some people like the idea of not having access to money (and not dealing with it) knowing it will go for retirement. Some people don't appreciate the lack of autonomy, and I fall in the second group.
As for choices, the number is actually decreasing https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/number-of-401k-funds-offered-to-plan-participants-shrinks.aspx
I have two 401Ks. One has 26 and the other 23 choices of investments which is apparently more than the average. I do not consider this a wide array of choices. Both do not have cash nor MMF; though one has SVF. One is one of the largest employers in one of the biggest metros in the city, the other is a well known academic place.

Which specifically? The white coat investor discusses how large future tax increases would need to be in order to render a 401k a tax-disadvantaged plan. I think that any investment may be more or less attractive in the future based on unpredictable variables. Real estate perhaps more than any other. People buy cryptocurrencies which could all be banned in a few years. They may greatly increase capital gains tax on taxable accounts. Is there a reason to think that future variables are going to be disadvantageous to 401ks in particular?

Taxes is the big one. Why are people so confident taxes will be similar 30 years down the road. It's a foolish bet and the entire premise of tax deferral rest on that assumption. But I was also referring to unpredictable events with major changes on the economy (essentially the black swans). Stocks are also more vulnerable to these. The government also a big stake in those accounts since they have not been taxed yet, but rather "deferred". The comparison to the capital gains tax is a bit lousy. Yes, for all we know, the government can confiscate everything. But their stake is much bigger in accounts that have never been taxed and that additionally are already subject to a penalty for withdrawl, as opposed to a regular brokerage account where really only the gains have not been touched before.

I'm not sure why you think real estate is based on more than any other. Certainly less volatile than stocks not to mention that in addition of being an investment it has the potential of providing ongoing gains. Even if you're actually just living in that house. I think it's much smarter to save for your first home than to dump it into a 401K (and I regret doing that). Doctors have actually a huge advantage with that since they can get a house with no downpayment. Of course all forms of investments have a downside. The biggest downside is liquidity but 401ks with the withdrawal penalty aren't really liquid either. Real estate is also subject to catastrophe, but they tend to ride those better - and natural catastrophes are usually fairly predictable and insured against (floods, earthquakes, hurricanes) - though admittedly climate change is a big one (catastrophe across the board really). There's very little insurance on your retirement account.

Isn't market volatility a factor of asset mix rather than the nature of the account? Both taxable and non-taxable accounts that include stocks are exposed to market volatility. A 401k that is entirely bonds will not be exposed to market volatility. My own 401k is a 'target date account' which shifts the asset mix to bonds over time, I believe this is an incredibly common arrangement.

This is simply not true. Again, refer you to 2008. These 401(k) funds took a beating in 2008 — and it could happen again
Even the most conservative blended arrangements got routed. If you happened to retire around that time, you got screwed.
Heck, even MMF crashed. I could refer you to an article in Time magazine about the 401K crash in 2008 and how badly it affected retirees around that time.
I have first hand experience with what a full blown economical collapse means (not in the US obviously). Sometimes the best place for your money is under the pillow - and that was almost the situation in 2008 anyhow.

The tax benefits are significant as money that a physician invests in a 401k would otherwise likely be taxed at the highest or second highest tax bracket, is allowed to grow without any tax on dividends, and when withdrawn will initially be untaxed for the first $20k or so, and then taxed at the lowest tax bracket and so forth (Roth versus Tax-Deferred: The Critical Concept of Filling the Brackets | White Coat Investor). Given that physicians are likely to rely on a mix of taxable and non-taxable accounts, it is possible to sustain an improved lifestyle in retirement while paying much lower effective tax on your 401k distributions than you would have paid on this income in peak earning years.

We've been through this.
I would refer you to this: Problems With 401(k) Plans and What You Can Do About Them

However, before accepting the premise that pre-tax investing is an investment advantage, keep in mind that when you withdraw your money from your 401(k) plan, the entire amount will be taxed at your personal income tax level.




This may be a disadvantage if your investment strategy achieves substantial long-term gains that could have been taxed at the lower capital gains tax rate level. Since these gains will be taxed as income under a 401(k) plan structure, your perceived pre-tax advantage on the front end will be offset to a certain degree by the tax disadvantage on the back end.

The effect is offset if you make big gains (say from an index fund that you've been building for decades). It is offset if the tax rate goes up (and entirely possible especially if you're getting big deductions while you were working and/or taxes go up. I posted that calculator above).

----

Again, I'm not saying 401ks are bad or don't do them. Maybe they make sense in an employed doctor's situation. I am not telling anyone what to do or how to save money. For my specific situation, I think there are better options that are less subject to risk, offer more flexibility and may even get more returns. Since I do have the choice though, I would definitely prefer a Roth account. It's something I'm considering.

 

[SmallBird]

FWIW.

Disclaimer: If you are a medical student, resident or fellow, please do not read the dangerous things written below. We do not think you're ready to use your brains independently just yet.



I was referring to difficulty accessing funds. There's a huge disincentive of withdrawal before 591/2, even when your account is losing in value. The con here is subjective to a large degree, though it would be an objective statement to say that the inability to touch your money for decades would hamper you from channeling it into different investments or even expenses. Some people like the idea of not having access to money (and not dealing with it) knowing it will go for retirement. Some people don't appreciate the lack of autonomy, and I fall in the second group.
As for choices, the number is actually decreasing https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/number-of-401k-funds-offered-to-plan-participants-shrinks.aspx
I have two 401Ks. One has 26 and the other 23 choices of investments which is apparently more than the average. I do not consider this a wide array of choices. Both do not have cash nor MMF; though one has SVF. One is one of the largest employers in one of the biggest metros in the city, the other is a well known academic place.

Sure, if you aren't looking for an account to save for retirement account, the 401k is not a good option I agree

Taxes is the big one. Why are people so confident taxes will be similar 30 years down the road. It's a foolish bet and the entire premise of tax deferral rest on that assumption.

It rests on the assumption that taxes will not change to such a significant extent that it invalidates all the benefits of a tax-deferred account, it does not rest on the assumption that taxes won't increase at all. If the standard deduction disappears and they start taxing the first $20k at the top current marginal rate it will indeed prove to have been the wrong choice. I'm happy to acknowledge that I live in hope that will not occur!

But I was also referring to unpredictable events with major changes on the economy (essentially the black swans). Stocks are also more vulnerable to these.

If your argument is that stocks are a bad investment relative to other options, it's an entirely different discussion. Black swan events will impact taxable and tax-deferred accounts. The argument here is about the value of tax-deferred accounts rather than asset classes. A 401k can contain bonds, stocks, REITs and even cryptocurrency now!

The government also a big stake in those accounts since they have not been taxed yet, but rather "deferred". The comparison to the capital gains tax is a bit lousy. Yes, for all we know, the government can confiscate everything. But their stake is much bigger in accounts that have never been taxed and that additionally are already subject to a penalty for withdrawl, as opposed to a regular brokerage account where really only the gains have not been touched before.

I'm not sure why you think real estate is based on more than any other. Certainly less volatile than stocks not to mention that in addition of being an investment it has the potential of providing ongoing gains. Even if you're actually just living in that house. I think it's much smarter to save for your first home than to dump it into a 401K (and I regret doing that). Doctors have actually a huge advantage with that since they can get a house with no downpayment. Of course all forms of investments have a downside. The biggest downside is liquidity but 401ks with the withdrawal penalty aren't really liquid either. Real estate is also subject to catastrophe, but they tend to ride those better - and natural catastrophes are usually fairly predictable and insured against (floods, earthquakes, hurricanes) - though admittedly climate change is a big one (catastrophe across the board really). There's very little insurance on your retirement account.

This is simply not true. Again, refer you to 2008. These 401(k) funds took a beating in 2008 — and it could happen again
Even the most conservative blended arrangements got routed.

Did 401ks do worse than taxable accounts that were invested in the stock market? 2008 was bad for the asset class of stocks. This has nothing to do with the benefits conferred by the 401k as a type of investment account.

If you happened to retire around that time, you got screwed.

Yes, I had a taxable account at the time that lost a lot of money.

Heck, even MMF crashed. I could refer you to an article in Time magazine about the 401K crash in 2008 and how badly it affected retirees around that time.
I have first hand experience with what a full blown economical collapse means (not in the US obviously). Sometimes the best place for your money is under the pillow - and that was almost the situation in 2008 anyhow.





We've been through this.
I would refer you to this: Problems With 401(k) Plans and What You Can Do About Them

However, before accepting the premise that pre-tax investing is an investment advantage, keep in mind that when you withdraw your money from your 401(k) plan, the entire amount will be taxed at your personal income tax level.




This may be a disadvantage if your investment strategy achieves substantial long-term gains that could have been taxed at the lower capital gains tax rate level. Since these gains will be taxed as income under a 401(k) plan structure, your perceived pre-tax advantage on the front end will be offset to a certain degree by the tax disadvantage on the back end.

The effect is offset if you make big gains (say from an index fund that you've been building for decades). It is offset if the tax rate goes up (and entirely possible especially if you're getting big deductions while you were working and/or taxes go up. I posted that calculator above).

----

Again, I'm not saying 401ks are bad or don't do them. Maybe they make sense in an employed doctor's situation. I am not telling anyone what to do or how to save money. For my specific situation, I think there are better options that are less subject to risk, offer more flexibility and may even get more returns. Since I do have the choice though, I would definitely prefer a Roth account. It's something I'm considering.

 

[G Sheb]

Sure, if you aren't looking for an account to save for retirement account, the 401k is not a good option I agree


It rests on the assumption that taxes will not change to such a significant extent that it invalidates all the benefits of a tax-deferred account, it does not rest on the assumption that taxes won't increase at all. If the standard deduction disappears and they start taxing the first $20k at the top current marginal rate it will indeed prove to have been the wrong choice. I'm happy to acknowledge that I live in hope that will not occur!


If your argument is that stocks are a bad investment relative to other options, it's an entirely different discussion. Black swan events will impact taxable and tax-deferred accounts. The argument here is about the value of tax-deferred accounts rather than asset classes. A 401k can contain bonds, stocks, REITs and even cryptocurrency now!



Did 401ks do worse than taxable accounts that were invested in the stock market? 2008 was bad for the asset class of stocks. This has nothing to do with the benefits conferred by the 401k as a type of investment account.

Yes, I had a taxable account at the time that lost a lot of money.

As expected, entirely a waste of time at this point.

 

[hamstergang]

Yes, you can all certainly continue if you want, but as an outsider to the conversation this does seem like a great time to end the discussion as it is just going in circles now and there's therefore no other way out. It was all interesting to read, at least.