Article claiming 401k no longer "makes sense"

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30investor
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Article claiming 401k no longer "makes sense"

Post by 30investor »

Don't know if it is appropriate to share this here or not. At first blush my thought is even if the author is right, the focus is on median household income tax levels. If you are being taxed in higher brackets both from an income and Cap Gains standpoint it seems 401k and furthermore traditional 401k is the way to go. But I'm curious if anyone has thoughts. https://www.bloomberg.com/opinion/artic ... for-savers
Dopey
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Re: Article claiming 401k no longer "makes sense"

Post by Dopey »

Thanks for posting. Interested in others' thoughts.

I immediately thought this guy was ridiculous. And while the title is probably a bit over the top, their point about it not being "as valuable" as before, perhaps has some validity.
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Re: Article claiming 401k no longer "makes sense"

Post by jason2459 »

Saw it, read the first paragraph, and instantly thought tune out the noise and stay the course.
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Re: Article claiming 401k no longer "makes sense"

Post by livesoft »

Something like 40% of American families do not pay any income tax. Those families should contribute to Roth IRAs if they have compensation and their employer does not provide an employer contribution to their 401(k) or 403(b) (if there is such a plan to begin with). Generally, low income workers cannot even max out their Roth IRAs anyways. Just look at the numbers: Can a family with 120% of the median family income that doesn't pay any income tax contribute 2 x $6,000 to Roth IRAs? Where would they get the money to do that? Would they stop paying rent? Stop making a car payment? Give up internet, Netflix, cable TV? Give up health insurance? Food?
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Re: Article claiming 401k no longer "makes sense"

Post by grabiner »

The conclusion of the article is that 401(k) plans are of little benefit for median-income investors, because the median income for a family is in the 12% tax bracket.

The math in the article is almost correct, given the article's assumptions. If you are in the 12% tax bracket now, and will always be in that tax bracket, you pay 0% tax on stocks with qualified dividends and capital gains. Therefore, you get no direct benefit from a 401(k) over a taxable stock investment. (And the tax situation is a wash, so you also get no direct benefit from a traditional 401(k) over a taxable stock investment.)

The reason for "almost" is that if you retire in the 12% tax bracket and can afford to invest in a 401(k) or IRA. you will likely be in the phase-in of Social Security taxation, so you pay 10.2% marginal tax on qualified dividends and capital gains in retirement. You can partly avoid this with a 401(k), either by using a Roth 401(k) or Roth IRA, or by converting your traditional 401(k) to a Roth IRA before you start taking Social Security (and drawing down the 401(k) so that you can wait until 70 to take Social Security).

However, there are several inaccurate assumptions in the article, and correcting them favors the 401(k) even for lower-income investors:

A medium-income family with children might be able to contribute enough to 401(k) plans to qualify for the earned income tax credit, which creates a marginal rate much higher than 12%.

You don't want your entire retirement portfolio in stocks. Holding bonds in a 401(k) or IRA gives you a benefit from tax deferral even in a 12% tax bracket.

If you pay state income tax, you pay that tax on stock dividends in your taxable account, so you benefit from tax deferral by putting the stock in a 401(k).

While there are high-expense 401(k) plans, most have a few lower-cost options. If your 401(k) offers an S&P 500 index at a low cost, and you can hold bonds in your IRA, you don't pay anything extra in expenses.

Many retirees pay lower state income taxes in retirement than while working, either because they retire in a state with no income tax (TX and FL are popular), or because their state offers a tax exemption on retirement income.
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Re: Article claiming 401k no longer "makes sense"

Post by Jags4186 »

I believe the author made a mistake.

While not median, mean 3rd fifth household income in the United States in 1980 was $17,701. Mean 4th fifth is $26,078.
https://www2.census.gov/programs-survey ... /h03ar.xls

In 1980, MFJ standard deduction is $3400. Personal exemption is $1000. Assuming a 4x person household (2 parents, 2 children) that means:

60th percentile family has a taxable income of $10,301
80th percentile family has a taxable income of $18,678

The marginal tax bracket at these levels is 18% at the $10,301 level and 24% at the $18,678 level.
https://www.tax-brackets.org/federaltaxtable/1981

Okay, so still better than today, but not nearly as lopsided as he makes it.
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Re: Article claiming 401k no longer "makes sense"

Post by 02nz »

One of the reasons for this "conclusion" is that 401k plans have higher fees than IRA accounts. A "typical" figure of 1.5% is given for 401k plans. That would in reality be on the high end; lots of 401k plans have similarly low costs as what's available from IRAs.
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Re: Article claiming 401k no longer "makes sense"

Post by wootwoot »

Another poorly written article by a "journalist".
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Re: Article claiming 401k no longer "makes sense"

Post by unclescrooge »

02nz wrote: Tue Jul 21, 2020 8:42 pm One of the reasons for this "conclusion" is that 401k plans have higher fees than IRA accounts. A "typical" figure of 1.5% is given for 401k plans. That would in reality be on the high end; lots of 401k plans have similarly low costs as what's available from IRAs.
You should see my wife's plan. 1.8% in fees.
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Re: Article claiming 401k no longer "makes sense"

Post by manatee2005 »

I do the mega back door into roth ira so I can get the gains tax free for life, which is the real benefit
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Re: Article claiming 401k no longer "makes sense"

Post by JBTX »

The author is correct to the extent he relies on a cherry picked scenario. To the extent that the employee is middle income in 12% bracket or lower, is not eligible for savers credit, does not use ACA subsidies, and has 401k with no low fee options, and no match, and no Roth option, then yes, the 401k is of marginal benefit.

That is a lot of ifs.
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Re: Article claiming 401k no longer "makes sense"

Post by abuss368 »

Financial porn that I tune out.
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Re: Article claiming 401k no longer "makes sense"

Post by RetiredAL »

Any set of numbers, when sufficiently tortured, can give you any result you want.

It appears he's applying today's (2019) median income of $63,000 to the 1980 tax rate for a $63,000 gross income. Well the median income in 1980 was $16,400.

$63,000 in 1980 would be equivalent to $242,000 today.

An interesting tidbit, per the this IRS document, the effective tax rate in 1980 was 9.9% on a median AGI of $12,800. The marginal rate was 21%. https://www.irs.gov/pub/irs-soi/80inintravmatr.pdf

I find it truly amazing how much today's news people invent a story. I might be naive about this, but when I was a teen, my recollection is that Cronkite, Huntley, and Brinkley only reported the news.
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Re: Article claiming 401k no longer "makes sense"

Post by MathIsMyWayr »

livesoft wrote: Tue Jul 21, 2020 8:20 pm Something like 40% of American families do not pay any income tax. Those families should contribute to Roth IRAs if they have compensation and their employer does not provide an employer contribution to their 401(k) or 403(b) (if there is such a plan to begin with). Generally, low income workers cannot even max out their Roth IRAs anyways. Just look at the numbers: Can a family with 120% of the median family income that doesn't pay any income tax contribute 2 x $6,000 to Roth IRAs? Where would they get the money to do that? Would they stop paying rent? Stop making a car payment? Give up internet, Netflix, cable TV? Give up health insurance? Food?
Netflix or cable TV? Rich folks.
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Re: Article claiming 401k no longer "makes sense"

Post by kjvmartin »

My family is fairly low income for our size (5). I use my 401k/457 through work, sometimes over and above the match.

One of the key advantages of a 401k is that you can't easily or painlessly take a distribution. If you're trying to save for retirement, this is a useful function. Even a Roth IRA can be plundered without penalty as long as you don't touch the gains.
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Re: Article claiming 401k no longer "makes sense"

Post by fyre4ce »

grabiner wrote: Tue Jul 21, 2020 8:34 pm A medium-income family with children might be able to contribute enough to 401(k) plans to qualify for the earned income tax credit, which creates a marginal rate much higher than 12%.
Also the Saver's credit.
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Re: Article claiming 401k no longer "makes sense"

Post by teen persuasion »

This author has obviously never done the real math or taxes for a lower income family of 4. EITC is huge, it's got a 21% phaseout rate by itself (plus my state matches at 30%, for another 6.3% phaseout, thus minimum marginal rate = 27.3%) on top of any direct tax avoidance via 401k contributions. Key here is that IRA contributions won't increase EITC, because they only affect AGI, not w2 wages, and EITC tests on both. So 401k contributions are crucial to effectively using the EITC.

We drive our taxes not just to zero (low taxable income + nonrefundable credits) but below zero (refundable credits not used to offset tax, refunded to us). Those refunds are more retirement savings - they fund our Roth IRAs (because there's no further tax savings to be gleaned, and diversity). Our Roth IRAs are 1/3 of our retirement account balances currently (plus we used those refunds to pay down our high rate mortgage in early years before opening Roth IRAs).

That's the true unfairness issue - lower income jobs are less likely to offer a 401k or other retirement account option at all. My employer didn't until one year ago; now we have a SIMPLE IRA :sharebeer at Wells Fargo :annoyed . I'm dumping 80% of my pay in, to max it before we finally decide to FIRE. I'm madly scrambling to get as much trad on my side of the retirement accounts (vs everything else that's in DH's name up to this point by necessity) so we can better take advantage of the state's annual tax exemption on the first $20k of IRA withdrawals per person. If none is in my name, we have half the exemption.

Other crazy idea in that article - exemption from FICA for 401k contributions. That would severely cut lower income recipients SS payments, or be an excellent reason to forego 401k contributions altogether. I don't want to have to make that choice.

The author also completely ignores the college financial aid angle of 401k vs taxable investing. Assets in retirement accounts are not reported on the FAFSA, while taxable assets are included in calculations, driving up EFC and reducing aid. Contributions to traditional 401k can reduce AGI low enough to make a family eligible for either the Simplified Needs Test (which skips the asset reporting, protecting EF accounts) or Auto EFC = 0. EFC = 0 opens up federal and state grants for lower income students. Saving in the wrong type of account could make students completely ineligible.

Besides, in retirement we expect to be able to withdraw/convert reasonable amounts from the traditional accounts at zero or very low tax rates each year while waiting to 70 for max SS. By then the traditional accounts will be small enough that RMDs and more conversions plus SS can still be kept at a zero or low tax amount, with growing Roth accounts for lump sums and inheritance.
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teen persuasion
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Re: Article claiming 401k no longer "makes sense"

Post by teen persuasion »

livesoft wrote: Tue Jul 21, 2020 8:20 pm Something like 40% of American families do not pay any income tax. Those families should contribute to Roth IRAs if they have compensation and their employer does not provide an employer contribution to their 401(k) or 403(b) (if there is such a plan to begin with). Generally, low income workers cannot even max out their Roth IRAs anyways. Just look at the numbers: Can a family with 120% of the median family income that doesn't pay any income tax contribute 2 x $6,000 to Roth IRAs? Where would they get the money to do that? Would they stop paying rent? Stop making a car payment? Give up internet, Netflix, cable TV? Give up health insurance? Food?
Using the $63k median family income mentioned by another poster, we are not quite at 120%.

I'm contributing 80% of my income to max my SIMPLE IRA $16.5k. DH is contributing 30% to his 403b, not sure of his income due to wfh changes, but probably $16k to retirement. He's also maxing the HSA $1k employer + $6.1k contributions. We expect to max 2 Roth IRAs $14k, half or so from refundable tax credits.

Argh, forgot the "how". Paid off the mortgage early (with refundable credits before we opened Roth IRAs). Buy used cars with cash, no payments. Never did cable. Internet is inexpensive. No Netflix, but do Amazon Prime. Health insurance thru employer, not terribly expensive right now, but previous employer was pricy, you get what you get. Food - buy ingredients and cook for yourself, instead of buying prepackaged instant food or going out to eat.

Biggest thing - learning the tax code and refundable credits, plus FAFSA rules.
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401(k) plans no longer make sense for savers*

Post by HoosierDude »

[Merged into existing discussion -- moderator oldcomputerguy]

*Their words, not mine.

Did anyone read this article on Bloomberg I'm not sure I understand what the author is getting at, especially this line, "In 2020, there is no tax advantage remaining to the 401(k)."

https://www.bloomberg.com/opinion/artic ... f=2o0rZsF1

The 401(k) retirement plan was authorized by the Revenue Act of 1978, which took effect in 1980, but its real genesis is the 1974 Employee Retirement Income Security Act, which fixed the problem of underfunded defined-benefit plans so thoroughly that private employers stopped offering them. Benefits consultant Ted Benna came up with a way to use the 1978 Act for a tax-deferred, defined-contribution plan and the rest is history.

The tax advantage of a 401(k) depends on four factors, all of which have changed dramatically since 1980 to the detriment of 401(k)s.
. . . .
[article clipped for fair use by Moderator Misenplace]
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Re: 401(k) plans no longer make sense for savers*

Post by wootwoot »

Repost
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Re: 401(k) plans no longer make sense for savers*

Post by HoosierDude »

wootwoot wrote: Wed Jul 22, 2020 8:16 amRepost
Apologies. I've been off for a few days and was just catching up over coffee.
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Re: Article claiming 401k no longer "makes sense"

Post by 3funder »

jason2459 wrote: Tue Jul 21, 2020 8:15 pm Saw it, read the first paragraph, and instantly thought tune out the noise and stay the course.
I will do you one better: I did not even click on the link to the article.
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Re: Article claiming 401k no longer "makes sense"

Post by 02nz »

teen persuasion wrote: Wed Jul 22, 2020 7:39 am This author has obviously never done the real math or taxes for a lower income family of 4. EITC is huge ...
Based on the author's background, it's highly unlikely he's ever met a person (or at least a client) within sight of qualifying for the EITC! :wink:
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Re: Article claiming 401k no longer "makes sense"

Post by Clever_Username »

Their reasons *might* apply to pre-tax contributions, but might not, for reasons well covered already in this thread.

If the tax break doesn't make sense, then a Roth 401(k) would be fantastic for such people.

The article also assumes they don't end up earning more later in their careers, which would affect both the value of the tax break then and the tax rate on capital gains and distributions on the taxable investments.
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Re: Article claiming 401k no longer "makes sense"

Post by rockstar »

My take away from the article is that the tax benefits of a 401k aren't as good as when they first came out.
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Re: Article claiming 401k no longer "makes sense"

Post by Broken Man 1999 »

RetiredAL wrote: Tue Jul 21, 2020 10:50 pm Any set of numbers, when sufficiently tortured, can give you any result you want.

It appears he's applying today's (2019) median income of $63,000 to the 1980 tax rate for a $63,000 gross income. Well the median income in 1980 was $16,400.

$63,000 in 1980 would be equivalent to $242,000 today.

An interesting tidbit, per the this IRS document, the effective tax rate in 1980 was 9.9% on a median AGI of $12,800. The marginal rate was 21%. https://www.irs.gov/pub/irs-soi/80inintravmatr.pdf

I find it truly amazing how much today's news people invent a story. I might be naive about this, but when I was a teen, my recollection is that Cronkite, Huntley, and Brinkley only reported the news.
I preferred Harry Reasoner and Howard K Smith. Chet and David were OK, as well.

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Re: Article claiming 401k no longer "makes sense"

Post by arcticpineapplecorp. »

teen persuasion wrote: Wed Jul 22, 2020 8:12 am
livesoft wrote: Tue Jul 21, 2020 8:20 pm Something like 40% of American families do not pay any income tax. Those families should contribute to Roth IRAs if they have compensation and their employer does not provide an employer contribution to their 401(k) or 403(b) (if there is such a plan to begin with). Generally, low income workers cannot even max out their Roth IRAs anyways. Just look at the numbers: Can a family with 120% of the median family income that doesn't pay any income tax contribute 2 x $6,000 to Roth IRAs? Where would they get the money to do that? Would they stop paying rent? Stop making a car payment? Give up internet, Netflix, cable TV? Give up health insurance? Food?
Using the $63k median family income mentioned by another poster, we are not quite at 120%.

I'm contributing 80% of my income to max my SIMPLE IRA $16.5k. DH is contributing 30% to his 403b, not sure of his income due to wfh changes, but probably $16k to retirement. He's also maxing the HSA $1k employer + $6.1k contributions. We expect to max 2 Roth IRAs $14k, half or so from refundable tax credits.

Argh, forgot the "how". Paid off the mortgage early (with refundable credits before we opened Roth IRAs). Buy used cars with cash, no payments. Never did cable. Internet is inexpensive. No Netflix, but do Amazon Prime. Health insurance thru employer, not terribly expensive right now, but previous employer was pricy, you get what you get. Food - buy ingredients and cook for yourself, instead of buying prepackaged instant food or going out to eat.

Biggest thing - learning the tax code and refundable credits, plus FAFSA rules.
Agreed. similar situation. Contributing $15,940 between 457b and Roth IRA and $3750 (6.5% of income) to pension plan.

no car payment (17 year old 108k mile car, i.e., no payments for past 12 years)
rent $880 month affordable considering what others are paying for similar or less.
have internet (couldn't live without bogleheads, right?) but no cable.
use mom's netflix password (netflix allowed two screens so it's pefectly legal and allowed per netflix)
have health insurance through employer (lower cost than average since it's the State and better buying power, admit this helps compared to the average worker)
eat at home 94%-97% of the time (even precovid) about once or twice a month total.
brown bag it to lunch while my coworkers run off to contribute to my S&P500 index fund by buying at mcdonald's, burger king, drinking coke and pepsi, etc.

it can be done, but it's not the average I admit. most people are not bogleish. Even Jack ate peanut butter sandwiches when he could have afforded filet mignon.
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401k vs Tax Efficient Taxable - Article linked

Post by System1 »

[Merged into existing topic discussing same article- Mod Misenplace]

I was just reading this opinion about the reduction in tax benefits of the 401k since its inception:
https://www.bloomberg.com/opinion/artic ... for-savers

What situations would make sense to avoid a 401k and switch to tax efficient investments in a taxable account? Maybe being in the 12% marginal tax bracket?

Personally I max my 401k contributions to reduce my upfront tax bill in a 22% marginal bracket +9% state. I invest in low cost index funds with expense ratios between .015 .035% plus?? an account maintenance fee of .125%.
Would anyone else consider those high fees?

I also max spouse TIRA, but don't qualify for my own TIRA deduction.

Has anybody else avoided a 401k for any reason besides high fees?

Thanks
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Re: 401k vs Tax Efficient Taxable - Article linked

Post by 02nz »

Already discussed here: viewtopic.php?f=10&t=320817

To answer your question, there's almost no situation (other than extremely high fees and perhaps need to access money before age 55 or 59.5) that would cause one to prefer taxable over 401k. Your fees are relatively low, much lower than the 1.5% fees the article claims are "typical" for 401k's. Stay the course.

BTW if you don't qualify for a TIRA deduction, then either fund a Roth IRA or do the backdoor in addition to your 401k contributions.
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Re: Article claiming 401k no longer "makes sense"

Post by Misenplace »

The threads on this same article have been merged.

Mod Misenplace
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Re: Article claiming 401k no longer "makes sense"

Post by qwertyjazz »

I take this as a very Bogleheads argument of costs matter. There is clearly a point where 401k costs can dominate tax advantages for specific groups. But the tax rate has to be low and the 401k costs have to be high. Otherwise costs do not matter “Enough“
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Re: Article claiming 401k no longer "makes sense"

Post by student »

Sorry I can't resist (after reading the comments), I don't know whether 401k no longer makes sense, but it seems that the article does not make sense.
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Re: Article claiming 401k no longer "makes sense"

Post by Grt2bOutdoors »

Anytime I hear retirement savings makes no sense - I disconnect. But more importantly, ERISA rules provide certain protections that regular taxable accounts do not - including credit protections from lawsuits. I won’t waste my time reading that article or rather opinion.
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Re: 401k vs Tax Efficient Taxable - Article linked

Post by alluringreality »

02nz wrote: Wed Jul 22, 2020 11:25 am Your fees are relatively low, much lower than the 1.5% fees the article claims are "typical" for 401k's. Stay the course.
Yeah, I'm not sure why people would be paying 1.5% in 2020. While the 0.15% administration fee makes my 401k the most expensive account I use, the 3% employer contribution makes it clearly worthwhile for a significant amount of money. There are only a few low cost funds to choose from, so I buy those and get other items in different accounts. Even when we were on different providers with fewer options, Target Date expenses were reasonable.
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Bloomberg: 401ks No Longer Make Sense?

Post by LosBills »

[Merged into the existing discussion — moderator oldcomputerguy]

Curious if anyone had come across the following Bloomberg article and would be very interested in hearing reactions/responses. Without getting into the author’s suggestions for how to improve 401ks today, is it possible that the tax and fee issues have eliminated the benefits of such accounts? That seems....unlikely to me.

https://www.bloomberg.com/opinion/artic ... for-savers

My instinct is that the premise of the article is an overstatement. Viewing my own situation, my company does not match any contributions, but fees (other than expense ratios) are covered for me unless/until I leave the job. If I understand correctly, were I to leave I would be best served by converting the 401k to an individual IRA and laddering it into a Roth over time—is that correct? If so, I imagine that would change the calculus, since leaving the 401k alone and taking on the related fees seems like one of the broad assumptions made by the author. The tax issues discussed seem more complicated to me, so any guidance/reaction would be great to hear and to learn.

Thanks as always to the community.
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Re: Bloomberg: 401ks No Longer Make Sense?

Post by 02nz »

Discussed here: viewtopic.php?f=10&t=320817. Reporting so mods can merge.

Short answer: 401k's make plenty of sense.
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401k plans no longer make much sense for savers [my situation]?

Post by Primerfan »

[Thread merged into here, see below. --admin LadyGeek]

Hi all,
This is my first post, so hopefully I'm doing so in the correct manner and place!

I'm wondering what the Boglehead consensus is on the following article. In short, it makes a case that the factors which made the 401k's tax advantage so compelling in 1980 (average marginal tax rate, average tax bracket in retirement, interest rates, plan fees) have drifted significantly since then, such that today there is little advantage to a 401k plan vs a taxable brokerage account.

https://www.bloomberg.com/opinion/artic ... for-savers

Not referenced in the article, but there's also an argument to be made that the 401k's RMDs could make it tougher to optimize your strategy for maximizing social security benefits?

This view does carry an assumption that the factors which have drifted one way with time do not drift back the other way to their 1980's values.

Other than that, however, I don't know whether there's a significant counterargument I'm missing? Yes, 401K's automate much of the process and encourage people who otherwise may not make a point to stash money away, but that's not a concern for me.

Although I could find this article reposted verbatim on several sites, I couldn't find any different articles arguing the same pitch?

Obviously everyone's circumstances & aims differ, but looking at this article, I'm considering re-evaluating my retirement investment strategy. I'd prioritize as follows:
-Enough 401k to get company match (instead of maxing it out as I currently do)
-Continue to Max out Roth IRAs (mine and wife's)
-Continue to max out my HSA
-Put the remainder I would have put into 401k into a taxable brokerage account instead (possible reducing the contribution to reflect the additional tax I'll be paying at the front end)

If having some specific background on my circumstances helps to answer this question:

Most of my investments are in US large-cap low cost index funds, with some US mid and small cap, and international large-cap, pretty much all index funds (mix of Fidelity and Vanguard).

I'm 43 yrs old, earning pretty decent money, my wife stays at home with the kids (7 & 9). We'd like to retire at 55, ideally by qualifying for an ACA supplement by keeping our income and expenses low, and tapping resources which won't boost our income past the threshold for subsidies.

With that context, the flexibility to manage income/tax liability with a taxable brokerage account vs a 401k, especially if it comes at very little extra tax burden, seems very compelling (esp with regard to qualifying for ACA subsidies)
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Re: 401k plans no longer make much sense for savers?

Post by runner3081 »

It has been posted a few times already on here.
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Re: 401k plans no longer make much sense for savers?

Post by Impatience »

Even if your tax bracket in retirement is identical or slightly higher than it is now, the ability to defer the taxes and grow the pretaxed amount is valuable. A 401k with zero match is still a good investment unless your provider charges some really ludicrous fees.

However it’s not exactly a home run - it’s worth it but I wouldn’t overstate that worth. I don’t max out my 401k, I go up to my employer match and then a few % more. The rest goes into a Roth IRA and a taxable account (I want some money I can access before I’m retirement age and long term capital gains isn’t that bad).
backpacker61
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Re: 401k plans no longer make much sense for savers?

Post by backpacker61 »

I still feel 401K plans make a lot of sense for savers.

It's impossible to predict what tax policy will be over a lengthy working career and retirement.

Another consideration is protecting your savings for retirement from legal judgements.

Assets in 401K plans have the strongest protection from legal judgements (at the federal level; from ERISA).

IRA assets have a lesser level of protection from judgements; which can vary from state-to-state; from equal to the protection level of 401K's to somewhat less (can be subject to the discretion of a judge).

Assets in taxable accounts have no protection from legal judgements; you will want to have an umbrella insurance policy covering assets you have outside of tax-sheltered retirement accounts once that asset level exceeds what liability coverage you have from your homeowner's or vehicle insurance.

The more of your assets you have in tax-advantaged retirement accounts, the less umbrella insurance coverage you will need to buy.
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Primerfan
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Re: 401k plans no longer make much sense for savers?

Post by Primerfan »

runner3081 wrote: Fri Jul 24, 2020 1:29 pm It has been posted a few times already on here.
Can you point me to some threads? I don’t want to retread things if there has already been dialog on this. I tried searching the forum, but couldn’t turn anything up?
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Re: 401k plans no longer make much sense for savers [my situation]?

Post by LadyGeek »

Primerfan, Welcome! Instead of basing your life's savings on a single article (what I think you're intending to do), may I instead suggest you post your portfolio information in this thread start a new thread in the Personal Investments forum using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.

Update: Thread merged into the on-going discussion. Changed request to start a new thread.
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lakpr
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Re: 401k plans no longer make much sense for savers?

Post by lakpr »

Primerfan wrote: Fri Jul 24, 2020 2:40 pm
runner3081 wrote: Fri Jul 24, 2020 1:29 pm It has been posted a few times already on here.
Can you point me to some threads? I don’t want to retread things if there has already been dialog on this. I tried searching the forum, but couldn’t turn anything up?
viewtopic.php?t=320847&p=5386443

There have been multiple threads but they are all merged into this Master thread by BH moderators.
It's also in the "Investing Theory" forum, may be partly the reason why you have been unable to locate it before.
retire2022
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Re: 401k plans no longer make much sense for savers?

Post by retire2022 »

Primerfan wrote: Fri Jul 24, 2020 2:40 pm
runner3081 wrote: Fri Jul 24, 2020 1:29 pm It has been posted a few times already on here.
Can you point me to some threads? I don’t want to retread things if there has already been dialog on this. I tried searching the forum, but couldn’t turn anything up?
Primerfan

It is hard to predict because it depends on what your tax rate will be in 43-67=24 years into the future.

For some, traditional 401K is better at their lower tax rate, because their income won't go higher, but with Tradtional you are giving up some of your compounded investments 24 years to uncle sam for tax deduction. Your beneficiaries will be required to withdrawal earlier rate with repeal of the stretch provisions.

If you go with a Roth 401K you get to get more of the your money with the understanding you are paying tax at a higher rate without tax deduction, and your family or beneficiaries won't pay inheritance tax.

Here is an older link on this: viewtopic.php?f=2&t=276183&hilit=roth
ponyboy
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Re: 401k plans no longer make much sense for savers [my situation]?

Post by ponyboy »

401k is the best vehicle to invest in. Pre tax growth. Even with the 10% penalty if you withdrawal early, its still better than any taxable account. Its already been proven. Thats a fact.
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Re: 401k plans no longer make much sense for savers [my situation]?

Post by ponyboy »

I made a $12 purchase a week ago and still havent received my $5 credit. I wont be using it again until that goes through. Merchant was on amex site of places that would work. Just another scam.
Last edited by ponyboy on Fri Jul 24, 2020 2:59 pm, edited 1 time in total.
retired@50
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Re: 401k plans no longer make much sense for savers [my situation]?

Post by retired@50 »

Primerfan wrote: Fri Jul 24, 2020 12:24 pm
I'm 43 yrs old, earning pretty decent money, my wife stays at home with the kids (7 & 9). We'd like to retire at 55, ideally by qualifying for an ACA supplement by keeping our income and expenses low, and tapping resources which won't boost our income past the threshold for subsidies.

With that context, the flexibility to manage income/tax liability with a taxable brokerage account vs a 401k, especially if it comes at very little extra tax burden, seems very compelling (esp with regard to qualifying for ACA subsidies)
Since you'll probably be on Medicare by 65 years old, assuming no change in current law, and RMDs won't start until 72 years old, again based on current law, how exactly would a high value IRA or 401k account spoil the ACA subsidy?

Having some money in taxable to get through years 55-60 will be very convenient, but you shouldn't have to abandon the idea of tax-deferred savings to achieve it. Once you hit 59.5 you can presumably access your retirement accounts without penalty. You'll just have to juggle how much you take from which type of account.

To me, the real advance planning question is how much money will you need between 55-60 and can you reasonably save it in a taxable account between now and then?

Regards,
This is one person's opinion. Nothing more.
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Re: 401k plans no longer make much sense for savers?

Post by LadyGeek »

lakpr wrote: Fri Jul 24, 2020 2:46 pm
Primerfan wrote: Fri Jul 24, 2020 2:40 pm
runner3081 wrote: Fri Jul 24, 2020 1:29 pm It has been posted a few times already on here.
Can you point me to some threads? I don’t want to retread things if there has already been dialog on this. I tried searching the forum, but couldn’t turn anything up?
viewtopic.php?t=320847&p=5386443

There have been multiple threads but they are all merged into this Master thread by BH moderators.
It's also in the "Investing Theory" forum, may be partly the reason why you have been unable to locate it before.
Thanks! The majority of the discussion is about the article. I have merged Primerfan's thread into the on-going discussion, which is in the Investing - Theory, News & General forum.

Primerfan - I modified my earlier post:
LadyGeek wrote: Fri Jul 24, 2020 2:44 pm Primerfan, Welcome! Instead of basing your life's savings on a single article (what I think you're intending to do), may I instead suggest you post your portfolio information in this thread start a new thread in the Personal Investments forum using the Asking Portfolio Questions format? It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions, ask them here.

Update: Thread merged into the on-going discussion. Changed request to start a new thread.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
sandan
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Re: 401k vs Tax Efficient Taxable - Article linked

Post by sandan »

System1 wrote: Wed Jul 22, 2020 11:24 am
Has anybody else avoided a 401k for any reason besides high fees?

Thanks
Absolutely. When I had low wages, lived in a non-income tax state, and wanted to build up cash + roth account + HSA, I avoided contributing to 401k. I've never had high 401k fees.
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