I feel cheated, saved too much in 401K vs cash.

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4nursebee
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I feel cheated, saved too much in 401K vs cash.

Post by 4nursebee »

At times I feel like perhaps I have been duped into saving too much in retirement accounts. The real difference maker for us as we approach retirement is the amount of cash available that wont be taxed. For many years I contributed the maximum toward the 401K, now wish at times that I had that money in a bank for brokerage account. Sure I would need to pay capital gains, but not income taxes. If the money were in cash it would make it easier to delay taking social security. If the money were in cash it would be easier to get subsidized health care (this week any way!). If I had saved the cash it would be easier to buy more rental properties and thereby earn more money without market volatility. If I had more cash other business ventures could have been undertaken.
I get the company match.
I still like Roth IRA though some of the above still apply.
I think there is a segment of people that really ought to consider other uses of their money other than a 401K.

Am I off base here? I am not a high earner.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by willthrill81 »

If your marginal tax rate will be lower in retirement than when you made your 401k contribution, as it is for most, then you will still come out ahead having put cash in your 401k. It's better to be taxed at 12% versus 22%, for instance.

But yes, cash outside a 401k is more flexible. Once you leave service with your employer, though, you can roll over whatever amount of your 401k, including the cash holdings, into an IRA, which is definitely more flexible.
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Re: I feel cheated, saved too much in 401K vs cash.

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Re: I feel cheated, saved too much in 401K vs cash.

Post by Blueskies123 »

While I was working my itemized deductions were being phased out, I was paying the net investment tax, Medicare tax surcharge and worst of all Alternative Minimum Tax. I am in the lowest tax bracket now.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by dknightd »

You are almost certainly better of with a 401. The money you contributed to that would have been taxed as income if you had not put it there. It is only fair that it is taxed as income when you take it out. Plus it grew tax free for all those years. As long as you retire after 59.5 tax deferred is the way to go.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by ThrustVectoring »

dknightd wrote: Tue Dec 18, 2018 6:00 pm As long as you retire after 59.5 tax deferred is the way to go.
You can access money from a tax deferred account prior to age 59.5 without paying a penalty. It's simply significantly more awkward than after full retirement age. 72(t) withdrawals and Roth conversion ladders are the options, IIRC.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by livesoft »

When I look at my tax returns, I see that my withdrawals from my 401(k) are not taxed until I have a lot of them. You know: Standard deduction, tax credits really help me out. No taxes paid going in; no taxes paid coming out. Win! Win!
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Re: I feel cheated, saved too much in 401K vs cash.

Post by 4nursebee »

letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by willthrill81 »

4nursebee wrote: Tue Dec 18, 2018 6:06 pm
letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
You're comparing apples and oranges. Cash is not real estate. You are comparing the returns of real estate to the returns of cash. Of course cash will come out the loser.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by GoldenFinch »

4nursebee wrote: Tue Dec 18, 2018 6:06 pm
letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
Owning rental properties means you have the work and risk of being a landlord. That could be fine if that’s what you want to do, but there is work and risk involved.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by 4nursebee »

willthrill81 wrote: Tue Dec 18, 2018 6:11 pm
4nursebee wrote: Tue Dec 18, 2018 6:06 pm
letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
You're comparing apples and oranges. Cash is not real estate. You are comparing the returns of real estate to the returns of cash. Of course cash will come out the loser.
I disagree, especially in my case. We have put non retirement assets into real estate. If we'd had more money in take home pay all along, we could have bought more income producing assets. The RE example is just the one I know some local figures on.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by smitcat »

4nursebee wrote: Tue Dec 18, 2018 6:06 pm
letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
"Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes."

Real estate always looks great until its not - IMO best to be diversified and never compare active rental activities to full retirement.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by willthrill81 »

4nursebee wrote: Tue Dec 18, 2018 6:15 pm
willthrill81 wrote: Tue Dec 18, 2018 6:11 pm
4nursebee wrote: Tue Dec 18, 2018 6:06 pm
letsgobobby wrote: Tue Dec 18, 2018 5:54 pm If you had the cash, you'd have 30% less of it, based on a WAG at your marginal state plus federal tax brackets plus the tax drag of a taxable investment.
Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.

Seriously. If I took 70% of the value of my 401K out today, enough rental homes could be purchased with cash to nearly equal my current income from the rents. If I retired with just my current 401K investments and used a VPW method, I would only get 50% of my income. Similar or better results with my spouses 401K.

I do not really have regrets but I doubt I will ever put the full amount into my 401K again.
You're comparing apples and oranges. Cash is not real estate. You are comparing the returns of real estate to the returns of cash. Of course cash will come out the loser.
I disagree, especially in my case. We have put non retirement assets into real estate. If we'd had more money in take home pay all along, we could have bought more income producing assets. The RE example is just the one I know some local figures on.
The only way to do the comparison you're trying to do is to compare cash in your 401k to cash outside your 401k. When you start investing that cash in anything else, the comparison must change as well.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by ahnathan »

Yeah but it doesn’t work like that does it? You cant just put biweekly 401k contributions “into real estate.” Unless you’re using an REIT and that’s not what you’re talking about.

Now that you have a large lump sum it sounds great.
Last edited by ahnathan on Tue Dec 18, 2018 7:20 pm, edited 1 time in total.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by dknightd »

4nursebee wrote: Tue Dec 18, 2018 6:15 pm
I disagree, especially in my case. We have put non retirement assets into real estate. If we'd had more money in take home pay all along, we could have bought more income producing assets. The RE example is just the one I know some local figures on.
Hindsight is 20/20. Nobody made you use the 401. You could have changed your mind at any time. For most people it is a good idea to use one if available to you. I'm sorry you feel cheated.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by J295 »

We are retired with twice as much in retirement assets versus taxable accounts. I’m quite satisfied that it ended up this way. Sure, when we withdraw from the retirement accounts there will be ordinary income, but we can push that back until 70.5 Our goal is to have the retirement accounts eventually pass to our heirs. Moreover, not paying the income tax during our higher earning years on the 401(k) contributions was great, especially now that we can keep income so modest. Which, by the way, has given us the opportunity for premium tax credits on insurance under the affordable care act.

As for real estate, one challenge there is that it generates income. This can make it difficult to qualify for premium tax credits under ACA. Once someone starts to receive Social Security, it also is problematic tax wise. In our case, we make no premium payments for a bronze HSA insurance plan. In the absence of those credits our insurance for two would exceed $20,000 per year.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by furikake »

I wish we could have put more in 401k, we maxed ours out every single time.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by mhalley »

Having some money in taxable is reasonable. If you are not a high earner, the 401k deduction is not as helpful, you could always cut back say 5% and put it in taxable. Would it result in a little less money in retirement? Perhaps. But it is personal finance, and if having some taxable investments makes you feel better, great.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by 3504PIR »

I’m at 50/50 between taxable and retirement accounts. I’m curious from the OP as to how having a retirement account heavy portfolio will impact when you take social security? You’d have access to the funds before becoming eligible for social security wouldn’t you? I’m a little nervous I misunderstand how all this works from our situation.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by marcopolo »

Cheated by whom?
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Re: I feel cheated, saved too much in 401K vs cash.

Post by Mlm »

Funny, I feel the opposite. For most of my working years I never had access to a 401K and lost huge tax benefits. In fact most of my retirement money is in a taxable accounts and Roth. It did help me qualify for low cost health insurance and I won't have big RMD's but I could have done much better with access to a 401K.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by TravelforFun »

I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

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Re: I feel cheated, saved too much in 401K vs cash.

Post by TravelforFun »

I'm 66 and am regretting I have put too much in IRA and 401k, and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
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Re: I feel cheated, saved too much in 401K vs cash.

Post by dknightd »

marcopolo wrote: Tue Dec 18, 2018 7:24 pm Cheated by whom?
Good question! It is hard for me to feel sorry for people who have too much in 401k!
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Re: I feel cheated, saved too much in 401K vs cash.

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TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
Actually, the HSA should come usually first due to the triple tax benefit.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by ThriftyPhD »

willthrill81 wrote: Tue Dec 18, 2018 8:28 pm
TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
Actually, the HSA should come usually first due to the triple tax benefit.
You wouldn't get the 401k match first? Instant 100% return if the match is 1:1
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Re: I feel cheated, saved too much in 401K vs cash.

Post by bgf »

this thread is giving me doubts. 2019 i will

max HSA $3500
convert $6000 taxable to Roth through tax loss harvesting
max 401k $19000

people here are telling me NOT to max my 401k but rather invest more in taxable???
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
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Re: I feel cheated, saved too much in 401K vs cash.

Post by TravelforFun »

ThriftyPhD wrote: Tue Dec 18, 2018 8:49 pm
willthrill81 wrote: Tue Dec 18, 2018 8:28 pm
TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
Actually, the HSA should come usually first due to the triple tax benefit.
You wouldn't get the 401k match first? Instant 100% return if the match is 1:1
Check my underlined phrase.

TravelforFun
Last edited by TravelforFun on Tue Dec 18, 2018 11:50 pm, edited 2 times in total.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by runner540 »

4nursebee wrote: Tue Dec 18, 2018 5:49 pm At times I feel like perhaps I have been duped into saving too much in retirement accounts. The real difference maker for us as we approach retirement is the amount of cash available that wont be taxed. For many years I contributed the maximum toward the 401K, now wish at times that I had that money in a bank for brokerage account. Sure I would need to pay capital gains, but not income taxes. If the money were in cash it would make it easier to delay taking social security. If the money were in cash it would be easier to get subsidized health care (this week any way!). If I had saved the cash it would be easier to buy more rental properties and thereby earn more money without market volatility. If I had more cash other business ventures could have been undertaken.
I get the company match.
I still like Roth IRA though some of the above still apply.
I think there is a segment of people that really ought to consider other uses of their money other than a 401K.

Am I off base here? I am not a high earner.
Who "duped" you? You got a very real income tax savings at the time, and decades of compound growth tax free. This is a very high class problem. Rental real estate is more active and more concentrated risk than mutual funds, so you can directly compare returns. Have you done the math on what your balance would be if you had been paying income taxes on the money and then capital gains on the growth? May not be as big a number as you think.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by Epsilon Delta »

TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k, and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
The Roth IRA was introduced in 1998, the HSA in 2003. You may have missed some opportunities, but for many of your younger years (presumable the lower tax years) they simply didn't exist. I'm younger than you but the majority of the value of my retirement savings comes from contributions made before the Roth was available.

---
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Re: I feel cheated, saved too much in 401K vs cash.

Post by MotoTrojan »

willthrill81 wrote: Tue Dec 18, 2018 5:53 pm If your marginal tax rate will be lower in retirement than when you made your 401k contribution, as it is for most, then you will still come out ahead having put cash in your 401k. It's better to be taxed at 12% versus 22%, for instance.

But yes, cash outside a 401k is more flexible. Once you leave service with your employer, though, you can roll over whatever amount of your 401k, including the cash holdings, into an IRA, which is definitely more flexible.
Even if your marginal tax rate is higher in retirement, you'll still come ahead, no? You wouldn't beat a Roth but the higher tax is offset by the growth you had prior to taxation.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by Highfeehater »

I had both the 401k and income producing real estate. I always maxed out the 401k and paid cash for the rental. Although I enjoyed the write- offs off the rental, I would take the tax and savings benefits I received from the 401k over any bennies I got from the rental. The 401k never required a new well or 15 yards of gravel in the driveway after a washout. Nor did my 401k ever call me because a faucet went bad. I also never paid property taxes on it.

Not saying you can't make money with rentals but there is more to it than just buying a place and renting it out-if you are a decent landlord. Be happy you got the benefits you did with the 401k. If you maxed it out, you did well. :happy
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Re: I feel cheated, saved too much in 401K vs cash.

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Re: I feel cheated, saved too much in 401K vs cash.

Post by michaeljc70 »

I get what the OP is saying, but the tax break UPFRONT is very tempting and satisfying (at least for me). And of course, passing up company matches is like shooting yourself in the foot. Being a good saver with an above average income, I've typically maxed out my retirement accounts and also added to my taxable savings. Taxable savings though went to down payments of homes and sometimes other things. Now (late 40s), I have 5 times as much in retirement accounts as taxable. I plan on retiring early so that will give me some time to convert some tIRA to ROTH.

If it is any consolation, it is a crap shoot for some (maybe many) people. The rules are "simple": save in Roth/taxable if your tax bracket will be higher in retirement and vice versa. Well, when you are 21 it is hard to think about what tax bracket you will be in in 40+ years! You cannot even guess what the tax brackets will be.
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Re: I feel cheated, saved too much in 401K vs cash.

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TravelforFun wrote: Tue Dec 18, 2018 9:13 pm
ThriftyPhD wrote: Tue Dec 18, 2018 8:49 pm
willthrill81 wrote: Tue Dec 18, 2018 8:28 pm
TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
Actually, the HSA should come usually first due to the triple tax benefit.
You wouldn't get the 401k match first? Instant 100% return if the match is 1:1
Check my underlined phrase.

TravelforFun
Sorry I missed that. So after the Roth would be back to the 401k, then taxable, right?
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Re: I feel cheated, saved too much in 401K vs cash.

Post by willthrill81 »

MotoTrojan wrote: Tue Dec 18, 2018 9:32 pm
willthrill81 wrote: Tue Dec 18, 2018 5:53 pm If your marginal tax rate will be lower in retirement than when you made your 401k contribution, as it is for most, then you will still come out ahead having put cash in your 401k. It's better to be taxed at 12% versus 22%, for instance.

But yes, cash outside a 401k is more flexible. Once you leave service with your employer, though, you can roll over whatever amount of your 401k, including the cash holdings, into an IRA, which is definitely more flexible.
Even if your marginal tax rate is higher in retirement, you'll still come ahead, no? You wouldn't beat a Roth but the higher tax is offset by the growth you had prior to taxation.
I was thinking of comparing to the Roth. But yes, tax-deferred will beat taxable virtually every time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: I feel cheated, saved too much in 401K vs cash.

Post by JoMoney »

Your employer may allow for you take take a loan from 401k to spend on whatever

If you left your employer, you could withdraw the 401k money and spend it on whatever you wanted (although 10% penalty if you don't go through Roth conversion ladder or SEPP(72t)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
tmcc
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Re: I feel cheated, saved too much in 401K vs cash.

Post by tmcc »

For all those with 401k contribution regret, what are your annual expenses and what was your savings pattern during your working years? For example.. current annual expenses are 100k and you always maxed your 401k.

I am phased out of roth so my only options are 401k, HSA and taxable. I max the tax advantaged but maybe I shouldn't be....

edit: I would really just like to get a handle on what you would find ideal in cash vs 401k if you could choose now in hindsight.
tivattom
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Re: I feel cheated, saved too much in 401K vs cash.

Post by tivattom »

ThrustVectoring wrote: Tue Dec 18, 2018 6:03 pm
dknightd wrote: Tue Dec 18, 2018 6:00 pm As long as you retire after 59.5 tax deferred is the way to go.
You can access money from a tax deferred account prior to age 59.5 without paying a penalty. It's simply significantly more awkward than after full retirement age. 72(t) withdrawals and Roth conversion ladders are the options, IIRC.
Also, don't forget the "Rule of 55" that allows for penalty free early withdrawals from a 401k if retiring/separating from your employer in the year you turn 55 or later. It's not guaranteed, but many plans allow for it.
Last edited by tivattom on Wed Dec 19, 2018 5:25 pm, edited 1 time in total.
TIAX
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Re: I feel cheated, saved too much in 401K vs cash.

Post by TIAX »

4nursebee wrote: Tue Dec 18, 2018 6:06 pm Sure, I guess something like that could be true. But, if I took that 70% of what I currently have in my 401K, paid cash for real estate, I would still be getting 6-7.5% return on 100% of the original money, year after year, nearly guaranteed, with a cash surplus after buying the homes.
First, you can buy a real estate fund or real estate stocks in your 401(k) or IRA (when you rollover the 401(k)) if you think it's so guaranteed. Second, it's not nearly guaranteed or anything close to it. And if you think a 401(k) is so bad, go ahead and pay the penalty and withdraw everything (or use rule 72(t)). Finally, taking advice that you end up disagreeing with is no way being cheated.
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4nursebee
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Re: I feel cheated, saved too much in 401K vs cash.

Post by 4nursebee »

My intent was not to make this about RE vs 401K, rather 401K versus saving outside of retirement accounts.

I am convinced that if we had saved more in taxable account that we would feel better retiring than if we had the money in 401K:
Cheaper insurance.
Easier ability to postpone withdrawals from retirement accounts and social security.
Increased peace of mind in fluctuating markets.
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JoMoney
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Re: I feel cheated, saved too much in 401K vs cash.

Post by JoMoney »

4nursebee wrote: Wed Dec 19, 2018 10:42 am My intent was not to make this about RE vs 401K, rather 401K versus saving outside of retirement accounts.

I am convinced that if we had saved more in taxable account that we would feel better retiring than if we had the money in 401K:
Cheaper insurance.
Easier ability to postpone withdrawals from retirement accounts and social security.
Increased peace of mind in fluctuating markets.
I'm confused as to why you think this is the case. If you rolled the 401k into an IRA you could use a "Roth IRA Conversion Ladder" to make withdrawals with the same flexibility you would have in a taxable account (actually more flexibility because you can rebalance, change allocations, and be unconcerned with the taxable impact of dividends / bond coupons etc.. since it's all contained within an IRA).
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
barnaclebob
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Re: I feel cheated, saved too much in 401K vs cash.

Post by barnaclebob »

We are in our early 30's. Our strategy is to pack 401k, roth's, and HSA's as full as we can afford until we have a better idea of how much taxable savings we might need in the event of earlier retirement. When we think we are 5-7 years out we will know more accurately if we need to divert contributions to taxable to cover the gap before we can start drawing down retirement accounts without penalties or excessive hoop jumping.

In any case its is personal responsibility to know how your cash flow will be sourced at all stages of life regardless of what anyone tells you.
Last edited by barnaclebob on Wed Dec 19, 2018 11:02 am, edited 1 time in total.
bloom2708
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Re: I feel cheated, saved too much in 401K vs cash.

Post by bloom2708 »

4nursebee wrote: Wed Dec 19, 2018 10:42 am My intent was not to make this about RE vs 401K, rather 401K versus saving outside of retirement accounts.

I am convinced that if we had saved more in taxable account that we would feel better retiring than if we had the money in 401K:
Cheaper insurance.
Easier ability to postpone withdrawals from retirement accounts and social security.
Increased peace of mind in fluctuating markets.
I continue to think you are not putting things in the correct perspective.

If you had saved in taxable all those years, you would have 25% (estimate) less and would have large capital gains. So you would owe 15% on an amount that is 25% less than what might be in your 401k.

Income tax brackets are progressive. When you withdraw from the 401k (before SS) the first bucket is 0%, then 10%, then 12%, then you get to 22%. You do not pay 22 or 24% on the full amount. Where as when you saved to the pre-tax 401k, you saved at the top marginal bracket. It comes off the top.

Let's say you flip it around and you have a small 401k and a larger taxable account. You would (today) sell the taxable, pay the tax and buy rental real estate with most of the taxable? That would leave you with a small 401k and a small taxable account. How is that more secure? Rental real estate is a big job. Especially with multiple units. You also concentrate your net worth in real estate.

In a sense, I think you are frustrated because you realize (like many) that you could have saved a lot more.

This thread is kind of similar to the "should I Roth or pre-tax save?" threads. People just starting out are wanting to pay tax now because they fear they might "save too much" 30 years down the road. There are many, many twists and turns along the way. First, you have to save a lot (pre-tax, Roth, taxable) and then you do things to limit your tax bill at the right times. Roth conversions if you have "too much" in pre-tax.

Sometimes it is just good to vent. I don't think pre-tax 401k is the bad guy. :wink:
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frugalmama
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Re: I feel cheated, saved too much in 401K vs cash.

Post by frugalmama »

4nursebee wrote: Wed Dec 19, 2018 10:42 am My intent was not to make this about RE vs 401K, rather 401K versus saving outside of retirement accounts.

I am convinced that if we had saved more in taxable account that we would feel better retiring than if we had the money in 401K:
Cheaper insurance.
Easier ability to postpone withdrawals from retirement accounts and social security.
Increased peace of mind in fluctuating markets.
I don't understand...those things have nothing to do with whether your money is in a taxable account or whether they are in a 401K.

Cheaper insurance....
What that has to do with is 1) are you saving more than you feel comfortable (i.e. affecting the value of your life currently)...so you could get discounts in bulk rather than paying only what you can. When you retire, you will have that money (so more money than if you used it to pay in cash now and got a discount). You aren't comparing apples to apples as in one case, you would get a discount and have none of the cash left...in the other you are delaying the cash, you may have lost out on the discount, but the discount most likely wouldn't cover the entire gain your money made all those years without paying taxes on it AND you will now have that money instead of it being spent. You can't make a comparison like you are without very specific #s...and it is clear to me you really haven't run them...but if you are saving more than you are truly able (sacrificing your living now for later) then the issue isn't 401K v. taxable account...it is you can't afford to save that much as you aren't able to truly meet current expenses for the cost of living you want to have...the savings wouldn't be in a taxable account...it would be spent.

Easier ability to postpone withdrawals from retirement accounts and social security...
I don't understand why you need to postpone withdrawals from retirement accounts. By saving in a retirement account instead of a taxable account you DID postpone withdrawals...you postponed them until your withdrawal. Otherwise, by putting them in a taxable account it was like you would have put them in the retirement account and taken them out the same year and then put in the taxable (just without the penalty). What you did allowed your cash to grow, untaxed for as long as possible. Now you pay the tax.

Increased peace of mind in fluctuating markets.....
That has nothing to do with taxable v. retirement either as far as I can see. It has to do with your asset allocation. It sounds like you need more cash. Taxable accounts can have the same asset allocations as retirement accounts essentially and vise versa. I know 401Ks are usually a bit more limited but you do have some very non-market fluctuation choices...you can essentially leave it a all as cash....a money market. So what you are really saying is that your asset allocation is off, right?
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greg24
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Re: I feel cheated, saved too much in 401K vs cash.

Post by greg24 »

4nursebee wrote: Wed Dec 19, 2018 10:42 amIncreased peace of mind in fluctuating markets.
Your taxable account would fluctuate just as much as your retirement account. Why would you have increased peace of mind?
MiddleOfTheRoad
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Re: I feel cheated, saved too much in 401K vs cash.

Post by MiddleOfTheRoad »

4nursebee wrote: Wed Dec 19, 2018 10:42 am My intent was not to make this about RE vs 401K, rather 401K versus saving outside of retirement accounts.


“I am convinced that if we had saved more in taxable account that we would feel better retiring than if we had the money in 401K:”

You need to unconvince yourself and do some math

“Cheaper insurance.”

By hiw much? I reckon the years you pay more for insurance until medicare is way less than the years you save on tax to contribute to the 401k. Not even taking intonaccount the compounding

“Easier ability to postpone withdrawals from retirement accounts and social security.”

If you say you have trouble getting the money out early I would agree with you a little. But postponement? Granted RMD is not ideal, but it is tax that you would have paid anyways and you only pay it once when you take it out. Remember it will take a couple of decades to wind down your pre-tax accounts with RMD - that is a long time. In taxable, you pay the tax upfront, then pay more tax yearly on div/cap gain. Even the yearly amount is small they add up.

“Increased peace of mind in fluctuating markets.”

As mentioned upthread, if you are comparing apple to apple the volatility is the same. If you are a market timer it is actually easier with money in the 401k since therr is no tax when you jump in and out.
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Spinola
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Re: I feel cheated, saved too much in 401K vs cash.

Post by Spinola »

Everyone must find the right balance of cash, 401K, IRAs, tax-advantaged and taxable investments, savings, etc.. Sounds like you may have tilted a bit too much in the 401K direction perhaps, however I suspect you will likely be better off for it in the end. If you maxed out Roth contributions, that would be almost the same as having access to cash (as far as penalty free access to your contributions over the years ) and ready access to all of it after 59.5 years of age.

I am probably in the same boat, trying to maximize contributions into my 403b and Roth, but I do want to retire in 10 years. :mrgreen:
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Re: I feel cheated, saved too much in 401K vs cash.

Post by marcopolo »

Spinola wrote: Wed Dec 19, 2018 11:50 am Everyone must find the right balance of cash, 401K, IRAs, tax-advantaged and taxable investments, savings, etc..
One of these is not like the other.

There seems to be a confusion (in the thread title and in your statement here) between what you invest in and the type of account used to make that investment. 401K, IRAs, taxable accounts are type of accounts. In them you can invest in stocks, bonds, commodities, and even cash.
It makes no sense to compare a 401k to cash. You could invest the money in your 401k into cash if that is what you wanted.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: I feel cheated, saved too much in 401K vs cash.

Post by Dottie57 »

TravelforFun wrote: Tue Dec 18, 2018 8:05 pm I'm 66 and am regretting I have put too much in IRA and 401k and not enough in Roth and taxable. My tax rates are higher now than in many of my working years. I wish someone had told me when I was younger that the order of investment is: 401k up to the match, HSA (If eligible), Roth, and taxable.

TravelforFun
It always looks greener on the other side. I am grateful for the tax breaks as they compelled me to save and invest. I DO wish I had been more frugal and put more into taxable. But I didn’t.

Just remember the amount of taxes you would have paid on amounts that were deferred - on both the contribution and the returns.
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