[USER]

Hi, I hear 2 different advices from people about 401k. Either to max out 401k for tax advantage or only put money to the company’s match, which will be about 6%.

Can someone explain why only up to company’s match?

I would like to hear about both reasonings and decide.

Thank you.

[John]

If it doesn’t bring you to a lower tax bracket and you can go Roth do the match then fund Roth.

When you have to take rmds from your huge 401 k the tax burden will crush you

[Christine]

Contributing to 401k saves you on income taxes because the money invested is pre-tax.

Not everyone can contribute the full amount allowed, which is why it’s recommended, at minimum, contribute to get the match.

It’s free money.

[Christina]

The match is “free money” that the company is giving to you.

If you cannot afford to max out your contribution, at least put in enough to get the free match.

[Kathy]

My daughter has been advised to max out and lower her tax bracket to zero, while taking some of her capital gains to purchase a house in the next few years

[Jessica]

It depends on the specific scenario. By contributing to a 401k, you reduce your taxes up front pre-tax.

The key is to drop you down to the next tax bracket pre tax if it’s possible, that way you’re taxed less.

If you already are in a low tax bracket but think in the future you’ll be in a higher tax bracket later, it’s advised to contribute to a Roth 401 so the money is taxed less now than if you have to take it out later.

[Jaquis]

It really depends on the person and their beliefs. Majority of the time, if someone is maxing out a 401(k) they need to bring down their taxable income.

If someone is doing the 6% match and nothing else, then putting the rest into ROTH account.

most times, those people believe taxes will be higher in the future and it doesn’t make sense to put funds in an account where they govt decide on a tax rates.

Both are good to have.

[Watson]

My man, it just depends. Do what you can afford. It changes with time.
When I first started I matched. In my late 20s-early 40s I maxed out many years.

Now I’m about to FIRE

I put 5%.
But if you’re going to max out your 401k, do it while you’re young.

It’s really hard but worth it.

[Eric]

401k’s frequently have higher fees, both for the overall account fee and the mutual fund fees for the limited funds that they offer.

The match will make up for that. Beyond the match, one can invest in a self directed IRA at a major brokerage and get just about any low cost ETF or stock that one wants.

The total contribution limit will be lower than the max for a 401k, but still substantial for most people

[Author]

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