Reply to Not maxing out 401k, even though high income

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]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.[/quote]

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+.

[/quote]

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. [/quote]

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