[tacostakohashi]

The rules for 401(k) will no doubt evolve over time, within the same legal / political protections and risks as anything else. Although I wouldn't be worried about outright appropriation, it's quite possible a modest tax could be introduced, then then rise over time - who knows what could happen over 30 or 50 years.

This, and the administrative overhead and inflexibility of 401(k) plans, 529 plans, health savings accounts, etc make me steer clear where practical. I use my employer's 401(k), contribute the amount needed to get the full match available, but that's it.

Beyond that, I'd rather pay my income tax up-front at the going rate instead of at some mystery future rate, and keep my savings and investments as unencumbered as possible.

[billmalarky]

>Beyond that, I'd rather pay my income tax up-front at the going rate instead of at some mystery future rate, and keep my savings and investments as unencumbered as possible.

The advantage of delaying tax payment is you have a larger upfront basis. With compound growth the initial amounts of invested capital carry _much_ more weight than later invested capital.

Just an alternative aspect to keep in mind.

[SomewhatLikely]

If the tax rate you pay stays the same, it doesn't matter whether you pay the tax upfront or on the backend, you'll end up with the same amount.

[bskap]

If you had $18000 dollars and had the option of investing it all and paying tax later or paying tax now and investing the rest, you'll end up with the same amount.

If you have $24000 to invest, your two options are:

1. Invest $18000 in a 401k, pay tax on it later. Pay tax on $6000 now, invest the rest and pay tax on the gains later too.

2. Pay $6000 in tax now, invest $18000 in a Roth account, pay no tax on it later.

The second one is better because it's essentially letting you put more of your earnings into the tax-advantaged account.

[billmalarky]

Good point. So the assumption to defer tax must be that your tax rate will go down because your withdrawal tax bracket will be smaller than your current income bracket?

[SomewhatLikely]

Employers can offer Roth 401(k)s, in which you pay the tax upfront but still get the advantages of tax free gains.