Not maxing out 401k, even though high income

[Anonymous]

Anonymous wrote:It just hit me today, why are people so excited about 401k if it is taxed as ordinary income? If you are a low wage earner and/or file as HH, you hardly pay any taxes anyway.
Capital gains in regular investment account are 0% up to $63k as HH for 2024.
With 401k, all I see are fees, rules, ordinary income versus long term capital gains tax, early withdrawal penalty, RMD, lousy investment choices, hidden fees, fund fees, bad customer service.
'Contribution follow a schedule'? You can't stop them if market is hot and about the crash? What is good about this account for low wage earners or anyone?
Didn't want to start a new thread, but what gives. Any tax professionals here?
401k does keep people from learning to invest on their own. I'd still be working if I had let someone else do it for me and trust them.
BIL has 4 accounts somewhere according to him. All he knows is that he was shown a graph how much he should have at 67 and it sounded good. Sil borrowed form her 401k to pay rent for one month, and now has fees, penalties or taxes if she can't pay back.
Seems like a horribly account to me. It's like the employer, government, and the servicers are working together to screw workers.

And for those of us that were at/above $150K by time we were 30, we use the 401k to defer taxes, which is always a good thing. For many, they will be at a lower income level in retirement than at over $400K in their 40/50s+.

[Anonymous]

Anonymous wrote:My wife and I know what we contribute. We both max it out. We file jointly. And we both became millionaires. We both have pensions so when we both turn 73, our income is going to sky rocket. We will have RMDs.

This is why high income people shouldn't "max out" 401k contributions. If you do the math on RMD's it may make more sense to put in enough to get the employer match and then invest in brokerage accounts. This is especially true if you have enough saved that you will be leaving money to your heirs. Brokerage accounts are inherited with a stepped up basis; in contrast, qualified accounts like 401ks are not -- they must be withdrawn on a short schedule and are taxed as income to your heirs.

[Anonymous]

Anonymous wrote:

Anonymous wrote:It just hit me today, why are people so excited about 401k if it is taxed as ordinary income? If you are a low wage earner and/or file as HH, you hardly pay any taxes anyway.
Capital gains in regular investment account are 0% up to $63k as HH for 2024.
With 401k, all I see are fees, rules, ordinary income versus long term capital gains tax, early withdrawal penalty, RMD, lousy investment choices, hidden fees, fund fees, bad customer service.
'Contribution follow a schedule'? You can't stop them if market is hot and about the crash? What is good about this account for low wage earners or anyone?
Didn't want to start a new thread, but what gives. Any tax professionals here?
401k does keep people from learning to invest on their own. I'd still be working if I had let someone else do it for me and trust them.
BIL has 4 accounts somewhere according to him. All he knows is that he was shown a graph how much he should have at 67 and it sounded good. Sil borrowed form her 401k to pay rent for one month, and now has fees, penalties or taxes if she can't pay back.
Seems like a horribly account to me. It's like the employer, government, and the servicers are working together to screw workers.

And for those of us that were at/above $150K by time we were 30, we use the 401k to defer taxes, which is always a good thing. For many, they will be at a lower income level in retirement than at over $400K in their 40/50s+.

Deferring taxes is not *always* a good thing. My DH and I never made over $500k a year, but we didn't even max out our 401ks completely and still saved enough to have to pay taxes on RMDs that we don't need that are 100% taxed as income at a high marginal rate that then just get reinvested. We saved quite a bit in brokerage accounts as well, but we would have been better off from a tax standpoint (not to mention from an estate planning standpoint) to have saved even more in brokerage (and pay capital gains only on the appreciation in the investments, plus leave any overage to our kids tax free). If you're a relatively high earner, it's worth doing the math on appreciation and RMD's and not save any more in retirement accounts than you need to get the employer match and will need as income in retirement.

[Anonymous]

Once you get $500k saved in retirement it makes sense to analyze your future timeline of college FAFSA lookbacks, IRMAA lookbacks brackets, RMDs, and “widows tax”. You want to try to keep taxable income below $206k in future stages of life to avoid Medicare (IRMAA) penalties.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I don’t max out my 401k. I only contribute up to the employer match.
The tax advantage of 401ks is overrated. Most plans don’t let you invest in individual stocks. That’s a massive opportunity cost. My brokerage account has grown much faster than my 401k. I’m still coming way ahead after taxes.
I understand most people don’t have the same risk tolerance. I have been doing this for 15 years and feel very comfortable.

Also most people don't have the time or interest in learning to pick stocks. Majority are better using good mutual funds than trying to beat them. Most smart financial advisors recommend mostly mutual funds because fact is most cannot consistently beat the market with individual picks.

Of course, this strategy is not for most people. That’s why most people don’t become multimillionaires.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have log-in access to spouse’s 401k account and online pay stubs. I’ve caught when employer mistakenly failed to make the 401k contribution for one paycheck (it was a widespread error).

It’s all both of our money, and I monitor it as such. Spouse has no qualms about this. They have access to my stuff as well.

This seems odd and like an employer security concern. If my employer found out I shared my company password with my spouse I woukd be fired. I don't think you should brag about this.

Our 401K logins are totally separate from anything related to actual work accounts. Your company is not very smart if your login for everything at work is thru the same system. Because yes it's normal for spouses to have the logins for 401Ks, Healthcare, and really anything benefits related

It's absolutely not normal for a non-employee spouse to have access to an employee spouse's employer sponsored 401(k) plan.