Key insights
- The author questions the conventional wisdom of maximizing 401k contributions given current low tax rates. They argue that future higher tax rates could negate the benefits of tax-deferred growth, suggesting taxable brokerage accounts may be more advantageous. This perspective implies a potentially bearish outlook for asset managers relying on consistent 401k inflows, though the impact is limited.
Given how low the current tax rates are, does it not make sense not to contribute to a 401k/IRA? Roths will always make sense, but in anticipation that tax rates will go up in the future, distributions would be taxed at a higher rate than hypothetical contributions would be taxed at today. Yes, you get tax-free growth, but if done wisely, investing in a brokerage account can be done tax efficiently. I am all for account diversification, but I feel like when you hit a certain point in retirement accounts (unless you make a crazy amount), it does not make sense.