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If we go through another"2008 crisis" that is when you can actually make money if you weather the storm. I am making 70k and the most I can afford to put in is company match on the 401k + full 5500 into IRA. I've been watching a lot of stuff on Netflix and thru Reddit links about the 2008 financial crisis. That's ~$200/mo you shouldn't need to pay in taxes. Cookies help us deliver our Services. And who doesn’t like free money?!? Using this type of account has nothing to do with the market and everything to do with the way investments are taxed. 401K is just making it harder for me to make my own investments and get out. Do yourself a favor, kid. In either of those cases, the investment tax compounds, while the tax on the 401K occurs only at the end. Scenario 1 you grow $1 to $10 for a 1,000% return, Scenario 2 you grow $0.78 to $10 for a 1,282% return. Thanks for the simple answer. Knowing so little about economics, this is the kinda answer I needed. The thing I hate the most about the 401K is that it forces you to work till you are old. That is how your big interest is really earned. Capital gains tax will be $1.38 plus the income tax I paid initially ($0.22) for a total of $1.60. So if there is a turn-down is it better to not try and time the market and just keep contributing like normal? Are these two things even related in any way or am I just asking a foolish question? That can work for or against you depending on working status. Some folks I know in particularly badly-run states (Hint: "Thanks, Obama! OP: If you just keep reading, keep thinking, keep assessing, you'll learn what's best. Wow! Well, if by chance you make a bunch of money in your 401k, you still can't touch it till your already old and in theory will have to work until then as well. I put that in 401K. My 401K plan wasn’t worth it anymore! Your logic would be closer to valid if you were going to buy a zero-dividend growth stock and hold it until retirement. The crash made housing prices more affordable, so I was able to get a better house than we were originally planning for. Yes, fuck that. If I did not use a 401k to defer my income, my marginal tax bracket would be 28%. If you never do that, every market drop is an opportunity to acquire more assets at a discount and sit on them until retirement. It's literally the same math. Yup! And it's ~$200/yr that doesn't get re-invested. Investing inside a traditional 401k is the same as making a bet that your tax rate will be lower when you retire than what it is now. In my experience my taxable account returns are lower than my tax-deferred returns for similar investments because I have to pay taxes every year on dividend and capital gains distributions and these are taxed at a relatively high tax rate due to my income. Thank you so much for your help! Why would I invest in a 401K beyond the employer match? When you invest inside a 401k you are getting tax free growth (You don't need to pay taxes on reinvested dividends) and tax deferred growth. For my personal situation this gives me $116k more invested when I retire assuming my 401k and taxable investments grow at … I began searching for options and finally found a product that I changed the way I looked at retirement. Your math is assuming the $0.78 will have a higher return in the brokerage account for the same amount of time the $1 will have in the 401k in order to reach final value of $10 in each of the accounts. Pour every single pay raise in to your 401k. $1 will grow to $10 faster than $0.78 will. Economic downturns are a field day for savers. You are 19, possess only a HS diploma and dream of retiring at 40?? Conversely, if I take that dollar as income now and pay the 22%, I have only $0.78 to invest. Join our community, read the PF Wiki, and get on top of your finances! Over a long period, that difference really matters. Why in your example does your 401k grow at a lower rate than your taxable investment? Without that, it depends on what you have available - Some rock, some completely suck. Is a 401k worth it anymore? After graduating from college, Grant Cardone was broke and swimming in $40,000 of student debt, he writes in his new book, "Be Obsessed Or Be Average. You can buy the same investments inside a 401k, IRA, taxable account, HSA, or life insurance policy. This is an additional $4623 that I can invest that I would not have without the 401k contributions. The match is a no-brainer. Why don't I reinvest the dividends? After 30-40 years, that will be a significant chunk of change. I would rather the option of retiring on my own terms than waiting for me to get to 59.6 years old. The second part means that you will pay the taxes when you cash out the funds. Do yourself a favor, kid. Edit: Stayed up late last night reading some stuff you guys linked me to and now I'm starting my Wednesday buried with stuff to read. Now, if you invested the $1 in the 401k and the $0.78 in the brokerage account at the same time until the $1 grew to $10, the $0.78 would only grow to $7.80 (assuming both accounts were invested in the same things). In forty years, your 401k will have considerably more than 22% more in it than your taxable account would have and it would cost you the same out-of-pocket to get there. You can put 18,000 in your 401k (actually a lot more than that, but only under matching rules that don't apply to the vast majority of us peons). But you might voluntarily or involuntarily change investments before retirement and you might prefer to reinvest dividends in a dividend stock. Would like it to $ 10 faster than $ 0.78 to invest another $ 5k/yr or against depending... Search `` 401k stock ticker '' and get very confused and everything to with! 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