New Trend? Contribute only up to your match on 401k?

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PhillyPhan
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New Trend? Contribute only up to your match on 401k?

Post by PhillyPhan »

There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.

I always thought that reducing one's AGI and putting your pre-tax dollars to work would yield the best outcome over time.

Maybe I am missing something or just not planning on drawing down funds in my 40s or hopefully 50s?

I say this as someone who has a taxable account and also with an open mind that if I should view this in another manner I am open to it.

Thoughts?
sailaway
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Re: New Trend? Contribute only up to your match on 401k?

Post by sailaway »

It rarely makes sense and as a rule of thumb is mostly pushed by advisers who want your taxable portfolio and people whose understanding of the rules of "retirement" accounts is limited to "you can't withdraw until you are 59.5."
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PhillyPhan
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Re: New Trend? Contribute only up to your match on 401k?

Post by PhillyPhan »

sailaway wrote: Wed Nov 18, 2020 4:19 pm It rarely makes sense and as a rule of thumb is mostly pushed by advisers who want your taxable portfolio and people whose understanding of the rules of "retirement" accounts is limited to "you can't withdraw until you are 59.5."
Can you elaborate? I know there is the 72t rule, is that what you are referring to? And when you say makes sense are you suggesting you net significantly less over time if you take the taxable approach?
KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

OP,


You should check out this link.

https://www.madfientist.com/how-to-acce ... nds-early/


KlangFool
fyre4ce
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Re: New Trend? Contribute only up to your match on 401k?

Post by fyre4ce »

Retirement and other similar accounts (401k, 403b, IRA, HSA, etc) are best thought of as making a deal with the government. The deal is, you agree to lock your money away until you're near retirement age (59.5), and the government gives you a tax break in return. This tends to be a win-win, because it saves you money, and also reduces the chances that you'll be destitute when you're older and need assistance for the government. The size of the tax break you get depends on how much tax you pay as a baseline. If you earn a high income and live in a high tax state, the benefits can be huge, like having 2-3x as much money available for the same initial investment. If your tax burden is already low, the benefits can be much smaller. (There are other benefits besides just the tax savings, like the 10 year stretch for your heirs, and asset protection, to name a couple.) But Bogleheads tend to be big fans of retirement and other tax-advantaged accounts, for all these reasons. You're going to need money to eat when you're >59.5, right? So why not take the tax break? And the rules for early withdrawal are pretty flexible too - you can take money out for home purchases, medical expenses, paying back taxes, and many other reasons. It's probably a good strategy to put as much of your savings in retirement accounts as you can, with a few exceptions: building an emergency fund, paying off high-interest debts, saving for known expenses you'll incur before age 59.5 (like saving for a future car fund), and maybe a few others. But for general savings, fill up the retirement accounts first before saving in a taxable account.
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Nate79
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Re: New Trend? Contribute only up to your match on 401k?

Post by Nate79 »

Can you link to some of these foolish articles?
H-Town
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Re: New Trend? Contribute only up to your match on 401k?

Post by H-Town »

PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.

I always thought that reducing one's AGI and putting your pre-tax dollars to work would yield the best outcome over time.

Maybe I am missing something or just not planning on drawing down funds in my 40s or hopefully 50s?

I say this as someone who has a taxable account and also with an open mind that if I should view this in another manner I am open to it.

Thoughts?
Is your annual saving > 60k? Typically you max out all tax advantaged accounts, and then put the rest to taxable accounts.

But if you don't save more than tax advantaged space, use as much tax advantaged space as possible. You'll regret it if you don't max it out. In the future, when you make more money, you'll look back and regret not maxing out tax advantaged space in your early life.
scout1
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Re: New Trend? Contribute only up to your match on 401k?

Post by scout1 »

Thanks OP for the post. I’ve also been seeing this trend and was hoping to hear the boglehead’s view.
Firemenot
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Re: New Trend? Contribute only up to your match on 401k?

Post by Firemenot »

Certainly makes no sense for people in high tax brackets that can pull money out later at lower tax brackets. Also, retirement accounts are basically bulletproof against creditors, including things like negligence/wrongful death lawsuits from what I’ve read. Still worth carrying a sizable ballon insurance policy just in case, in my view.
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PhillyPhan
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Re: New Trend? Contribute only up to your match on 401k?

Post by PhillyPhan »

Nate79 wrote: Wed Nov 18, 2020 5:51 pm Can you link to some of these foolish articles?
Tweets such as the following

https://twitter.com/thewealthdad/status ... 6615731202

"I no longer care about accumulating the most money I possibly can via retirement accounts by 60

What I care about is accumulating enough money that will sustain my lifestyle, so that I can walk away from it all in my 40's"

The replies all seem to agree that it allows you more access to your wealth.
Firemenot
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Re: New Trend? Contribute only up to your match on 401k?

Post by Firemenot »

PhillyPhan wrote: Wed Nov 18, 2020 6:03 pm
Nate79 wrote: Wed Nov 18, 2020 5:51 pm Can you link to some of these foolish articles?
Tweets such as the following

https://twitter.com/thewealthdad/status ... 6615731202

"I no longer care about accumulating the most money I possibly can via retirement accounts by 60

What I care about is accumulating enough money that will sustain my lifestyle, so that I can walk away from it all in my 40's"

The replies all seem to agree that it allows you more access to your wealth.
If one is permanently walking away 72T route is available without penalty. I think someone already pointed that out above. Also, even a 10% penalty at a much lower tax bracket (e.g., 10% or less than what income would have been taxed at) seems fine if for some reason 72T didn’t work out or was phased out.
Marseille07
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Re: New Trend? Contribute only up to your match on 401k?

Post by Marseille07 »

It's a balancing act. If a 40yo having 5K in taxable and 3M in 401K then maybe they can contribute only up to the match. Really depends on the balance of their portfolio.
LittleMaggieMae
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Re: New Trend? Contribute only up to your match on 401k?

Post by LittleMaggieMae »

PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
Thoughts?
Maybe it has something to do with one's income level? Or if they will have a pension? combined with how they expect their income to go over their life time - will it remain relatively flat or will it grow grow grow as they switch jobs and climb the corporate ladder?

The availability of a good pension may mean one doesn't need as much money in "retirement accounts".
Not everyone's income grows by leaps and bounds over their lifetime. Not everyone starts their first "adult job" with a large salary.

I would think one would need to tailor their long term saving strategy to how they predict their income/career will go.
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Re: New Trend? Contribute only up to your match on 401k?

Post by Grt2bOutdoors »

Advisers need to eat, one way they do so is by eating a percentage of your assets held under their management. An annuity for them if you think about it. Now, they will face starvation if say they work at Edward Jones and your 401k retirement money is held with Fidelity.

The real rule of thumb is take the tax deduction upfront now and put as much as you can into that retirement designated account up to the IRS limits, if you have excess funds then open a Roth IRA and if you still have disposable monies, open a taxable account. Most people will not likely be able to fund the max plus IRA and taxable unless they have a large income shovel.
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HawkeyePierce
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Re: New Trend? Contribute only up to your match on 401k?

Post by HawkeyePierce »

The only times I've seen a serious recommendation to only contribute up to the match are the following scenarios:

1) You're deep in debt and not yet ready to start investing. You should still try to get the match as that instant return likely dwarfs the interest on your debt.

2) Your 401k has very high fees *and* you are not maxing out your retirement accounts. In this case, it can make sense to contribute enough to get the match, then send the rest to an IRA.
Normchad
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Re: New Trend? Contribute only up to your match on 401k?

Post by Normchad »

The FIRE movement, and all the articles surrounding it, are starting to irk me.

There is nothing wrong with saving, investing, planning and retiring early. But I think for most people, it will never happen. Or it won't be that early. It's just really really hard to do.

But these articles are making it sound like everybody can do it; which is likely a disservice. And with that idea in mind, it lets a lot of other bad ideas spring up. i.e. "Well, you're going to retire t 40, right? If so, you need a taxable account to live off of. Come open one with us and stop using your 401k". That kind of stuff.

Someone up thread (@sailaway) hit the nail on the head. This line of thinking benefits investment advisors collecting AUM fees, so they are likely to encourage them.

A different rule of thumb that I really like is this. "If you have the choice of paying $1 of tax now, or deferring it until later, alway choose to pay it later".
Firemenot
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Re: New Trend? Contribute only up to your match on 401k?

Post by Firemenot »

Normchad wrote: Wed Nov 18, 2020 6:34 pm The FIRE movement, and all the articles surrounding it, are starting to irk me.

There is nothing wrong with saving, investing, planning and retiring early. But I think for most people, it will never happen. Or it won't be that early. It's just really really hard to do.

But these articles are making it sound like everybody can do it; which is likely a disservice. And with that idea in mind, it lets a lot of other bad ideas spring up. i.e. "Well, you're going to retire t 40, right? If so, you need a taxable account to live off of. Come open one with us and stop using your 401k". That kind of stuff.

Someone up thread (@sailaway) hit the nail on the head. This line of thinking benefits investment advisors collecting AUM fees, so they are likely to encourage them.

A different rule of thumb that I really like is this. "If you have the choice of paying $1 of tax now, or deferring it until later, alway choose to pay it later".
The thing that irks me about most of the FIRE blogs (but not all — there are exceptions) is one of the two is usually true: (i) spouse works so they’re really a stay at home parent or (ii) they’re actually financing, or trying to finance, much of their living expenses off a new blogger career.
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Re: New Trend? Contribute only up to your match on 401k?

Post by 260chrisb »

PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.

I always thought that reducing one's AGI and putting your pre-tax dollars to work would yield the best outcome over time.

Maybe I am missing something or just not planning on drawing down funds in my 40s or hopefully 50s?

I say this as someone who has a taxable account and also with an open mind that if I should view this in another manner I am open to it.

Thoughts?
If you're planning to draw down funds in your 40s or 50s you've got a bad plan you're going to be disappointed. Keep that to your taxable account. I can only speak for myself but I continue to contribute to the max in my 401K as I have for nearly 20 years and have no regrets. A good income made it easy for me to not miss the money. Take advantage of the tax benefits, you've got a long way to go. I love the Roth of course and at your assumed young age there are excellent tax advantages as well. Having funds allocated and on autopilot via a work plan reduces the chances of you not investing in a taxable account as you have to have the discipline to do it. I did all of the above; 401K tax deferred, Roth, and taxable.
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Re: New Trend? Contribute only up to your match on 401k?

Post by montanagirl »

It's a good thing I never paid attention to the advice because my company never gave a match.

Oh, one year the CEO was in a good mood and spiffed us $50.

I maxed out anyway, and also did an IRA. Yeah my income was that low. :|
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PhillyPhan
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Re: New Trend? Contribute only up to your match on 401k?

Post by PhillyPhan »

260chrisb wrote: Wed Nov 18, 2020 6:38 pm
PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.

I always thought that reducing one's AGI and putting your pre-tax dollars to work would yield the best outcome over time.

Maybe I am missing something or just not planning on drawing down funds in my 40s or hopefully 50s?

I say this as someone who has a taxable account and also with an open mind that if I should view this in another manner I am open to it.

Thoughts?
If you're planning to draw down funds in your 40s or 50s you've got a bad plan you're going to be disappointed. Keep that to your taxable account. I can only speak for myself but I continue to contribute to the max in my 401K as I have for nearly 20 years and have no regrets. A good income made it easy for me to not miss the money. Take advantage of the tax benefits, you've got a long way to go. I love the Roth of course and at your assumed young age there are excellent tax advantages as well. Having funds allocated and on autopilot via a work plan reduces the chances of you not investing in a taxable account as you have to have the discipline to do it. I did all of the above; 401K tax deferred, Roth, and taxable.
I am convinced that bogleheads are light years ahead of financial twitter folks. Thanks for the reassurance. Ill keep maxing my tax advantaged space and ignore the noise.
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Croissant
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Re: New Trend? Contribute only up to your match on 401k?

Post by Croissant »

the advantage of throwing some money into a separate fund outside of your retirement account (401k, IRA etc) is 1.more investment options 2.penalty free early withdrawal.

for the first point you have to ask, are you confident you can get a better return in a retail brokerage account than the options given to you in the 401k (target date funds, bonds, indexes)? and also earn back the tax advantage? for the second point if your nest egg is so large you can retire well before the 401k penalty free withdrawal age, then yes it would be good to have some money to tie you over (inaddition to the 72(t) amounts) until you can reach 59 (or 89 for us millennials :oops: )

p.s. this calculator got me a ballpark number.
https://www.bankrate.com/retirement/cal ... alculator/
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Re: New Trend? Contribute only up to your match on 401k?

Post by firebirdparts »

montanagirl wrote: Wed Nov 18, 2020 6:45 pm It's a good thing I never paid attention to the advice because my company never gave a match.

Oh, one year the CEO was in a good mood and spiffed us $50.

I maxed out anyway, and also did an IRA. Yeah my income was that low. :|
Same. No match. Maxed it out for 30 years. No regrets.
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teen persuasion
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Re: New Trend? Contribute only up to your match on 401k?

Post by teen persuasion »

PhillyPhan wrote: Wed Nov 18, 2020 6:03 pm
Nate79 wrote: Wed Nov 18, 2020 5:51 pm Can you link to some of these foolish articles?
Tweets such as the following

https://twitter.com/thewealthdad/status ... 6615731202

"I no longer care about accumulating the most money I possibly can via retirement accounts by 60

What I care about is accumulating enough money that will sustain my lifestyle, so that I can walk away from it all in my 40's"

The replies all seem to agree that it allows you more access to your wealth.
I followed the link, and read the echo chamber tweets. Then tracked back to his link; not a website, exactly, just a vehicle for selling his books/courses. Read more of his tweets. He admits as he gets more followers, he's quicker on the trigger to block those who disagree with his approach. So, yeah, every comment you see will agree with him. He's looking to preach/teach to loyal followers, not learn something himself. Doesn't mean he's right, though.
H-Town
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Re: New Trend? Contribute only up to your match on 401k?

Post by H-Town »

PhillyPhan wrote: Wed Nov 18, 2020 6:03 pm
Nate79 wrote: Wed Nov 18, 2020 5:51 pm Can you link to some of these foolish articles?
Tweets such as the following

https://twitter.com/thewealthdad/status ... 6615731202

"I no longer care about accumulating the most money I possibly can via retirement accounts by 60

What I care about is accumulating enough money that will sustain my lifestyle, so that I can walk away from it all in my 40's"

The replies all seem to agree that it allows you more access to your wealth.
He seems lack of knowledge in tax planning, as well as financial planning.
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Monster99
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Re: New Trend? Contribute only up to your match on 401k?

Post by Monster99 »

In my working career, I never made over 130k - I put the max into the 401k, contributed to Roth when available and the rest into taxable. No regrets at all.
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JoeRetire
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Re: New Trend? Contribute only up to your match on 401k?

Post by JoeRetire »

PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.
I haven't detected any such pattern of articles.

If your goal is to retire very early, then contribute the max to your 401k (perhaps a Roth 401k), and also put additional funds in a taxable account. Spend less, save more in every way you can, but don't give up tax advantages.

If that doesn't get you to your FIRE goal, then you aren't trying hard enough.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

Firemenot wrote: Wed Nov 18, 2020 6:06 pm
PhillyPhan wrote: Wed Nov 18, 2020 6:03 pm
Nate79 wrote: Wed Nov 18, 2020 5:51 pm Can you link to some of these foolish articles?
Tweets such as the following

https://twitter.com/thewealthdad/status ... 6615731202

"I no longer care about accumulating the most money I possibly can via retirement accounts by 60

What I care about is accumulating enough money that will sustain my lifestyle, so that I can walk away from it all in my 40's"

The replies all seem to agree that it allows you more access to your wealth.
If one is permanently walking away 72T route is available without penalty. I think someone already pointed that out above. Also, even a 10% penalty at a much lower tax bracket (e.g., 10% or less than what income would have been taxed at) seems fine if for some reason 72T didn’t work out or was phased out.
Yes, the Madfientist (see KlangFool's link above) notes that even if you have to pay the 10%, you can still be significantly better off than having contributed to taxable.
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

JoeRetire wrote: Thu Nov 19, 2020 10:43 am
PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.
I haven't detected any such pattern of articles.
I've heard of a couple of people who have recently resurrected the old '401k plans are bad' myth, but I wouldn't call that a pattern.
JoeRetire wrote: Thu Nov 19, 2020 10:43 am If your goal is to retire very early, then contribute the max to your 401k (perhaps a Roth 401k), and also put additional funds in a taxable account. Spend less, save more in every way you can, but don't give up tax advantages.

If that doesn't get you to your FIRE goal, then you aren't trying hard enough.
To be honest, I'm surprised at how many posters voluntarily give up tax-advantaged space in order to invest in taxable (and I'm not including 529 accounts). It's probably not more than a handful, but it should be zero.
“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: New Trend? Contribute only up to your match on 401k?

Post by White Coat Investor »

PhillyPhan wrote: Wed Nov 18, 2020 4:14 pm There seems to be a pattern of articles emerging around the strategy of only contributing to the match max within your 401k.
The general idea for this is that your additional funds can be allocated to a taxable account (after you fully fund your roth) which is more easier to access if you decide to retire before 60.5.

I always thought that reducing one's AGI and putting your pre-tax dollars to work would yield the best outcome over time.

Maybe I am missing something or just not planning on drawing down funds in my 40s or hopefully 50s?

I say this as someone who has a taxable account and also with an open mind that if I should view this in another manner I am open to it.

Thoughts?
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Re: New Trend? Contribute only up to your match on 401k?

Post by JoeRetire »

willthrill81 wrote: Thu Nov 19, 2020 10:52 amTo be honest, I'm surprised at how many posters voluntarily give up tax-advantaged space in order to invest in taxable (and I'm not including 529 accounts). It's probably not more than a handful, but it should be zero.
I've learned that there are always a number of people doing things that seem to make no sense at all to me. I guess I'm no longer surprised.
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Re: New Trend? Contribute only up to your match on 401k?

Post by Soon2BXProgrammer »

I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
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Re: New Trend? Contribute only up to your match on 401k?

Post by Mike Scott »

There are tax/financial circumstances in which a taxable brokerage is almost the same as unlimited Roth space.
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

Mike Scott wrote: Thu Nov 19, 2020 11:10 am There are tax/financial circumstances in which a taxable brokerage is almost the same as unlimited Roth space.
That's true, but I've not seen any situation where taxable would beat Roth. The best case scenario is that it comes out even. As such, it doesn't make sense to forego Roth space in favor of taxable.
“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: New Trend? Contribute only up to your match on 401k?

Post by H-Town »

Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Life events happen. The chance of those events happen are more probable than you might think.
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Re: New Trend? Contribute only up to your match on 401k?

Post by ray.james »

KlangFool wrote: Wed Nov 18, 2020 4:30 pm OP,


You should check out this link.

https://www.madfientist.com/how-to-acce ... nds-early/


KlangFool
One of the conclusions: "paying the penalty is better than taxable account in most cases". Ofcourse there are SEPP/roth conversions to optimize this. But 401k withdrawal with penalty is not even bad, compared to taxable. Compound interest is truly a wonder.
Last edited by ray.james on Thu Nov 19, 2020 3:46 pm, edited 1 time in total.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: New Trend? Contribute only up to your match on 401k?

Post by Soon2BXProgrammer »

H-Town wrote: Thu Nov 19, 2020 11:19 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Life events happen. The chance of those events happen are more probable than you might think.
I'm not sure what you mean?
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Re: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.
“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: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.

How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

KlangFool wrote: Thu Nov 19, 2020 11:39 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.

How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
But that's my point: you're just guessing, but you said that he was wrong. You should not say that people are wrong unless you know that they are.
“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: New Trend? Contribute only up to your match on 401k?

Post by TomatoTomahto »

willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,
And, you will be wrong. If you are interested in exploring this, start a new topic.
KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.
It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.
Thank you willthrill for your objectivity. KlangFool seems to speak in absolute, “the math is simple” ways that generalize from his and his family’s experience.

I expect that we will be in a similar (or higher) tax bracket upon retirement, even absent tax rate increases (a taboo subject here). In addition to the factors you’ve identified, my widow will likely have to file Single for some part of her life.
Last edited by TomatoTomahto on Thu Nov 19, 2020 11:48 am, edited 1 time in total.
I get the FI part but not the RE part of FIRE.
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Watty
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Re: New Trend? Contribute only up to your match on 401k?

Post by Watty »

HawkeyePierce wrote: Wed Nov 18, 2020 6:25 pm The only times I've seen a serious recommendation to only contribute up to the match are the following scenarios:

1) You're deep in debt and not yet ready to start investing. You should still try to get the match as that instant return likely dwarfs the interest on your debt.

2) Your 401k has very high fees *and* you are not maxing out your retirement accounts. In this case, it can make sense to contribute enough to get the match, then send the rest to an IRA.
Another possible case.

3) Your income is low enough that you will owe no income taxes. With the child tax credit a lot more people qualify for this than you might think. In this case after getting the employer match a Roth would be a better choice than a taxable account though.
Last edited by Watty on Thu Nov 19, 2020 11:49 am, edited 1 time in total.
KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

willthrill81 wrote: Thu Nov 19, 2020 11:45 am
KlangFool wrote: Thu Nov 19, 2020 11:39 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.

How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
But that's my point: you're just guessing, but you said that he was wrong. You should not say that people are wrong unless you know that they are.
willthrill81,


Between point A to point B, there are many paths from (A) to (B).


1) Only one path is possible for me.


2) Many paths are possible for me.


Is the point of view (1) more likely to be true or (2)?


KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

TomatoTomahto wrote: Thu Nov 19, 2020 11:47 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,
And, you will be wrong. If you are interested in exploring this, start a new topic.
KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.
It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.
Thank you willthrill for your objectivity. KlangFool seems to speak in absolute, “the math is simple” ways that generalize from his and his family’s experience.

I expect that we will be in a similar (or higher) tax bracket upon retirement, even absent tax rate increases (a taboo subject here). In addition to the factors you’ve identified, my widow will likely have to file Single for some part of her life.
TomatoTomahto,

<<we will be in a similar (or higher) tax bracket upon retirement, even absent tax rate increases (a taboo subject here)>>

That is not the actual claim. This is the actual claim.


<<my expected tax bracket for the rest of my life is equal to my current tax bracket.>>


The claim is the tax bracket will stay the same continuously over a long period of time. It is not between two time periods.


KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

KlangFool wrote: Thu Nov 19, 2020 11:48 am
willthrill81 wrote: Thu Nov 19, 2020 11:45 am
KlangFool wrote: Thu Nov 19, 2020 11:39 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am

Soon2BXProgrammer,

And, you will be wrong. If you are interested in exploring this, start a new topic.


KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.

How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
But that's my point: you're just guessing, but you said that he was wrong. You should not say that people are wrong unless you know that they are.
willthrill81,


Between point A to point B, there are many paths from (A) to (B).


1) Only one path is possible for me.


2) Many paths are possible for me.


Is the point of view (1) more likely to be true or (2)?


KlangFool
You are now speaking of likelihoods, not absolutes. In your original statement, you were making an absolute claim.

Further, if Soon2BXProgrammer will be in the same or higher tax bracket in retirement, then Roth 401k contributions make perfect sense. So even if he is wrong and his tax bracket is higher than he expects, he will likely be still be better off with Roth 401k contributions now.
“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: New Trend? Contribute only up to your match on 401k?

Post by KlangFool »

willthrill81 wrote: Thu Nov 19, 2020 11:54 am
KlangFool wrote: Thu Nov 19, 2020 11:48 am
willthrill81 wrote: Thu Nov 19, 2020 11:45 am
KlangFool wrote: Thu Nov 19, 2020 11:39 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am

How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.

It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.

How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
But that's my point: you're just guessing, but you said that he was wrong. You should not say that people are wrong unless you know that they are.
willthrill81,


Between point A to point B, there are many paths from (A) to (B).


1) Only one path is possible for me.


2) Many paths are possible for me.


Is the point of view (1) more likely to be true or (2)?


KlangFool
You are now speaking of likelihoods, not absolutes. In your original statement, you were making an absolute claim.
willthrill81,

What is the likelihood that your life turned out exactly as you planned over a long period? It is close to zero.


KlangFool
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Re: New Trend? Contribute only up to your match on 401k?

Post by TomatoTomahto »

KlangFool wrote: Thu Nov 19, 2020 11:52 am
TomatoTomahto wrote: Thu Nov 19, 2020 11:47 am
willthrill81 wrote: Thu Nov 19, 2020 11:37 am
KlangFool wrote: Thu Nov 19, 2020 11:23 am
Soon2BXProgrammer wrote: Thu Nov 19, 2020 10:58 am I have started to limit my pre-tax contributions (by prioritizing Roth 401k) now that my expected tax bracket for the rest of my life is equal to my current tax bracket.
Soon2BXProgrammer,
And, you will be wrong. If you are interested in exploring this, start a new topic.
KlangFool
How do you know that he's wrong? He may have a pension, non-portfolio income, a very large tax-deferred balance, etc. already.
It doesn't happen very often, but some people are in a higher tax bracket in retirement than they were in while working.
Thank you willthrill for your objectivity. KlangFool seems to speak in absolute, “the math is simple” ways that generalize from his and his family’s experience.

I expect that we will be in a similar (or higher) tax bracket upon retirement, even absent tax rate increases (a taboo subject here). In addition to the factors you’ve identified, my widow will likely have to file Single for some part of her life.
TomatoTomahto,
<<we will be in a similar (or higher) tax bracket upon retirement, even absent tax rate increases (a taboo subject here)>>
That is not the actual claim. This is the actual claim.
<<my expected tax bracket for the rest of my life is equal to my current tax bracket.>> claim is the tax bracket will stay the same continuously over a long period of time. It is not between two time periods.
KlangFool
Okay, although I don’t quite follow your fine distinction, let me rephrase my statement about us: our expected tax bracket for the rest of our lives is equal to our current tax bracket. I’m not sure whether it was saying our bracket might be higher in the future that triggered you, or what precisely. I think it’s silly to think that anyone’s tax bracket will stay the same continuously over a lifetime (legal changes, death of a spouse, etc), but if that’s what allows me to say that a Roth 401k isn’t necessarily a bad idea, there we are.
I get the FI part but not the RE part of FIRE.
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Re: New Trend? Contribute only up to your match on 401k?

Post by willthrill81 »

KlangFool wrote: Thu Nov 19, 2020 11:57 am
willthrill81 wrote: Thu Nov 19, 2020 11:54 am
KlangFool wrote: Thu Nov 19, 2020 11:48 am
willthrill81 wrote: Thu Nov 19, 2020 11:45 am
KlangFool wrote: Thu Nov 19, 2020 11:39 am


How do you know that he is right? My guess is probably more likely to be true than yours.


KlangFool
But that's my point: you're just guessing, but you said that he was wrong. You should not say that people are wrong unless you know that they are.
willthrill81,


Between point A to point B, there are many paths from (A) to (B).


1) Only one path is possible for me.


2) Many paths are possible for me.


Is the point of view (1) more likely to be true or (2)?


KlangFool
You are now speaking of likelihoods, not absolutes. In your original statement, you were making an absolute claim.
willthrill81,

What is the likelihood that your life turned out exactly as you planned over a long period? It is close to zero.


KlangFool
Again, you are talking about likelihoods now.

And also again, Soon2BXProgrammer may be in a higher tax bracket in retirement than while working, meaning that Roth 401k contributions make more sense.

You're not making any new statements and just saying the same thing using different wording. As such, I don't see any purpose in continuing this sub-conversation.
TomatoTomahto wrote: Thu Nov 19, 2020 12:03 pm Okay, although I don’t quite follow your fine distinction, let me rephrase my statement about us: our expected tax bracket for the rest of our lives is equal to our current tax bracket. I’m not sure whether it was saying our bracket might be higher in the future that triggered you, or what precisely. I think it’s silly to think that anyone’s tax bracket will stay the same continuously over a lifetime (legal changes, death of a spouse, etc), but if that’s what allows me to say that a Roth 401k isn’t necessarily a bad idea, there we are.
Well said. We don't know the future with certainty, but we still have to make decisions based on the information we have available to us. Claiming that uncertainty about the future means that making informed decisions about the future is wrong is just plain silly. It's antithetical to this forum and life in general.
“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: New Trend? Contribute only up to your match on 401k?

Post by MrBobcat »

I've told my children to prioritize savings as follows:

1. Take 401(k) to get max match.
2. Fund Roth fully.
3. Finish maxing 401(k) and HSA if they have one.
4. Taxable account.

2 of the 3 kids are in step 3 and are increasing 401(k) contributions as raises come. My oldest is in step one (she doesn't make as much as her brothers) The one's in step 3 are currently 28 & 29 and have fully funded their Roth's since they started working.

Is there anything seriously wrong with this strategy?
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Re: New Trend? Contribute only up to your match on 401k?

Post by JoeRetire »

KlangFool wrote: Thu Nov 19, 2020 11:48 am And, you will be wrong.

...

Between point A to point B, there are many paths from (A) to (B).
1) Only one path is possible for me.
2) Many paths are possible for me.
Is the point of view (1) more likely to be true or (2)?
"Will be" isn't the same thing as "more likely".
Last edited by JoeRetire on Thu Nov 19, 2020 12:13 pm, edited 1 time in total.
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