Thanks for reading and sharing your perspective. You’re right that many Americans are not lucky enough to need this advice. I wish you the best on your goals!
Good one - retired at 56, work part time, kind of wish I prioritized experiences with children before they left the house over saving. Living for today vs saving for tomorrow has trade offs either way. I agree having a cash reserve, does provide relief.
Pet peeve: Hearing the well-off of my parents' generation complain about the RMDs and associated tax bills. You knew you were going have to pay taxes at some point, and Dave R now telling you "the tax torpedo is theft!" is a bunch of who-shot-John, in Judge Judy parlance, hahaha.
And you could have spent earlier and maybe enjoyed it more.
I invest for "retirement" but it's more of a backup plan than a goal.
Retirement is an antiquated concept from the days of factory work, pensions, and limited options.
Grind it out on the hamster wheel for 30-40 years, take 2 weeks annually for yourself, invest, and hope you have the health, energy, and funds to do what you want in the last third of your life.
The modern "retirement" model is this...Do remote, flexible work you’re passionate about, take extended time off, enjoy those life experiences along the way in your 30s, 40s, and 50s, and design a life you don't want or need to retire from. Quitting work and living off your portfolio is no longer the goal; it's your backup plan in the event of a health issue or if shit goes wrong.
That’s a great vision! And I’m not against living off your portfolio at some point(s) either. The need may come before traditional retirement age, so it pays to have some funds that are accessible.
I wrote about personal finance early in my career, which, fortunately, led me to start saving and investing early. So I've got a decent fund. However, I've lightened up as I've gotten older and view my portfolio differently. It's no longer a target goal/number/or age. It's more of a holistic fund for life, later years, and legacy. As a writer, I wouldn't retire anyway. I can do it from anywhere and enjoy what I do. So while work hours may decline and rates may change, stopping work altogether isn't part of my plan.
Excellent piece. And with current tax law exempting $98,000 (joint filers) in long term capital gains from income tax, there’s zero reason to put any money into an account that gets locked up for decades. In fact, you’ll pay more taxes in long run because you’ll pay regular income tax on gains instead of zero on gains. These big firms getting fees from running 401k’s don’t want you to realize that.
Yes! This realization was an "unlock" moment for me earlier this year at a financial conference. A client noted that he is so frustrated to be paying (relatively high) ordinary income tax rates on his IRA distributions when 90% of the balance is now capital gains that would otherwise be taxed at 0-15%. Of course, he benefitted from deducting the contributions along the way, but when compound interest works like it's supposed to your growth will end up being nearly all gains over decades - which our system historically taxes a lot more favorably.
The trap of an article like this, even though it’s a great article, is that people think what’s suggested applies to everyone universally. (And based on some of the comments, this is proving true). The reality is everyone’s situation is unique. A good financial planner can help you effectively navigate your specific circumstances to make the right for you.
Very true. Though most financial advice articles are geared toward the “average” American or those just starting out, which is why I try to discuss elements of wealth that might be relevant to a more affluent audience.
Most of the financial content I read/listen to are great educational opportunities, but not necessarily advice to be taken literally, regardless of wealth. Just my .02
That said, I do appreciate your content and find it thorough and informative! Other examples I like include Roger Whitney, “Erin talks money”, Andy Panko, Wade Pfau, Taylor Schulte.
Sure. I hate to say this basically benefits people with very large accounts. It’s not good tax policy, honestly, but it’s there, so the middle class should try to use it as much as possible. Basically, let’s say that every year, you invested $10,000 in just a regular Fidelity brokerage account instead of a 401k and you’re a pretty passive investor and just bought some index funds with it. If you’re in the 20% tax bracket, it cost $12,000 of income to get $10,000 net income to purchase that. If you don’t sell those share for two years, then all the gains become long-term capital gains and up to $98,000 a year!! are exempt from income taxes. So you could sell it right then and pay no taxes on the gains. So let’s say you held it for 20 years and now the total is $30,000 of which $20,000 is gains. If that were in a 401k, you’d be paying taxes on that extra $20,000 (as well as now paying that tax on the original $10K) no matter how long over time you took it out. So you’ll eventually pay $4,000 on those gains (in a 20% tax bracket) as well as the $2,000 on the original that’s just been deferred. So really you just paid $4,000 more in taxes. 401k’s should be gone as long as this tax provision changes. This break on capital gains is basically a ROTH IRA without the hassles of one. And most people think they’ll be in a lower tax bracket in retirement, but as the brackets creep up over the years, that’s actually unlikely that you’ll even be in a lower bracket and so you’ve done nothing except make all your gains subject to the highest type of tax (regular income). All of this is terrible policy, but it’s there. And more people should gain their financial flexibility back in the troubling times.
Thanks for explaining that, super interesting and makes sense. We’re bordering on the next tax bracket so it may apply to me soon. Only clarification: you’d still be paying capital gains (10%) on that $20,000 of growth, so you’d just be saving $2k, not $4k, correct? Still significant and the ability to move it freely (after a year) without being tied to specific funds is a huge win.
Not necessarily. There is actually a ZERO percent capital gains tax bracket - taxable incomes up to $49k for single filers or $99k for joint filers are taxed at 0% rate (by contrast the lowest bracket for ordinary income - which is what Ira distributions are - is 10%). I personally paid 0% in taxes for 2025 even with an AGI over 6 figures; my itemized deductions offset my ordinary income, and I realized just under $50k in capital gains, which were taxed at 0%!
Elizabeth is right. You’ll actually pay zero on that gain as long as it’s “long term”. And if you’re really good, you could wait the two years to turn something into long-term; sell it; owe no taxes on it; and turn around and buy it right back in order to create a new higher cost basis for yourself. With a little bit of diligence, you won’t ever pay taxes on any of the gains you make. Much like a Roth without the contribution limitations.
You’re not guaranteed tomorrow, so live for today! Have goals and missions that you want to achieve, and make things happen in the present. You’re only young once, so make the most of it.
I’ve met millionaires who panic over a $10,000 surprise expense.
On paper, they’re financially successful. Their retirement accounts are full, their net worth looks impressive, and by most measures they’re doing everything right.
Yet they still feel constrained , sometimes even poor. because so much of their wealth is inaccessible when life actually happens.
Not because they lacked assets.
Because they lacked access.
I’ve seen people with substantial retirement accounts worry about a broken furnace, a job loss, or helping an adult child because so much of their wealth was locked away.
Liquidity doesn’t always improve a balance sheet. But it often improves peace of mind. Money does different jobs. Some is for the future. Some is for flexibility. Some is simply for helping you sleep at night.
I think many people underestimate the value of that last one.
Wow thank you for the unconventional take on this topic! One thing I’ve learned from my parents also complaining about paying so much tax on their 401k withdrawals is that you want to have a diversified retirement plan - a mix of 401k, Roth, brokerage, and cash. They all have their pluses and minuses.
What a great post and love this alternate view. I’ll chime in with the inheritance factor. If you plan on not emptying your accounts in order to leave something for your kids, a taxable brokerage and Roth IRA are ideal inheritance accounts - whereas an inherited IRA must be emptied within ten years and since your child will likely still be working and at the height of their money making potential (mid forties to mid fifties) when a parent dies, any withdrawals will be expensive in terms
Of taxes. Meanwhile on the taxable brokerage they will get a step-up and can control distributions, and a Roth does affect their taxes at all.
I don’t think I’m in a position to stop putting money into retirement, but having just worked my first season for an online tax prep company, I can say AMEN to retirees resenting their tax bills! I spoke to several who owed significant underpayment penalties but refused on principle to pay quarterly estimated taxes. I couldn’t tell you what that principle was, exactly, but they were adamant about it. 😂
My dad is like this! He told me years ago that taxes were such a mental beating for him that he refused to do them more then once a year and would rather pay the penalty (this from someone who is otherwise VERY cost conscious to the point of being cheap). 🤦♀️
I’m a ‘super saver’ but when you think of the mental conditioning built over 40+ years, and the public narrative reinforcing retirement, it’s no wonder people are as nervous as a cat to tap what they saved. So many die early and pass it on. Although it’s noble, is it a fulfilled life or just an exercise in restraint. I guess it’s personal. Without kids my concern is spending it without spending too much
The fretting over RMDs is so real. I was talking to an 80-year-old gentleman in the tax office today who was upset over $131,000 in capital gains (mostly mutual funds). People tell me they “don’t feel rich” and balk at paying taxes.
I was excited to read this until I realized it doesn’t apply to most Americans.
“I do endorse getting your 401k match and funding a Roth IRA1).”
Well, just achieving those two things is out of the reach of most people, you know!
I am 60, have made tremendous efforts to save and do not have anywhere near the $600,000 you mention.
You’re right about one thing: We will never be able to retire.
Thanks for reading and sharing your perspective. You’re right that many Americans are not lucky enough to need this advice. I wish you the best on your goals!
Good one - retired at 56, work part time, kind of wish I prioritized experiences with children before they left the house over saving. Living for today vs saving for tomorrow has trade offs either way. I agree having a cash reserve, does provide relief.
Pet peeve: Hearing the well-off of my parents' generation complain about the RMDs and associated tax bills. You knew you were going have to pay taxes at some point, and Dave R now telling you "the tax torpedo is theft!" is a bunch of who-shot-John, in Judge Judy parlance, hahaha.
And you could have spent earlier and maybe enjoyed it more.
I invest for "retirement" but it's more of a backup plan than a goal.
Retirement is an antiquated concept from the days of factory work, pensions, and limited options.
Grind it out on the hamster wheel for 30-40 years, take 2 weeks annually for yourself, invest, and hope you have the health, energy, and funds to do what you want in the last third of your life.
The modern "retirement" model is this...Do remote, flexible work you’re passionate about, take extended time off, enjoy those life experiences along the way in your 30s, 40s, and 50s, and design a life you don't want or need to retire from. Quitting work and living off your portfolio is no longer the goal; it's your backup plan in the event of a health issue or if shit goes wrong.
That’s a great vision! And I’m not against living off your portfolio at some point(s) either. The need may come before traditional retirement age, so it pays to have some funds that are accessible.
I wrote about personal finance early in my career, which, fortunately, led me to start saving and investing early. So I've got a decent fund. However, I've lightened up as I've gotten older and view my portfolio differently. It's no longer a target goal/number/or age. It's more of a holistic fund for life, later years, and legacy. As a writer, I wouldn't retire anyway. I can do it from anywhere and enjoy what I do. So while work hours may decline and rates may change, stopping work altogether isn't part of my plan.
Excellent piece. And with current tax law exempting $98,000 (joint filers) in long term capital gains from income tax, there’s zero reason to put any money into an account that gets locked up for decades. In fact, you’ll pay more taxes in long run because you’ll pay regular income tax on gains instead of zero on gains. These big firms getting fees from running 401k’s don’t want you to realize that.
Yes! This realization was an "unlock" moment for me earlier this year at a financial conference. A client noted that he is so frustrated to be paying (relatively high) ordinary income tax rates on his IRA distributions when 90% of the balance is now capital gains that would otherwise be taxed at 0-15%. Of course, he benefitted from deducting the contributions along the way, but when compound interest works like it's supposed to your growth will end up being nearly all gains over decades - which our system historically taxes a lot more favorably.
Am I missing something? If ones employer has a good 401k match, wouldn't that make it a good deal even with taxes on both the amount invested + gains?
The trap of an article like this, even though it’s a great article, is that people think what’s suggested applies to everyone universally. (And based on some of the comments, this is proving true). The reality is everyone’s situation is unique. A good financial planner can help you effectively navigate your specific circumstances to make the right for you.
Very true. Though most financial advice articles are geared toward the “average” American or those just starting out, which is why I try to discuss elements of wealth that might be relevant to a more affluent audience.
Most of the financial content I read/listen to are great educational opportunities, but not necessarily advice to be taken literally, regardless of wealth. Just my .02
That said, I do appreciate your content and find it thorough and informative! Other examples I like include Roger Whitney, “Erin talks money”, Andy Panko, Wade Pfau, Taylor Schulte.
Also: I am with Milton Friedman on the mistake of paycheck withholding. One of his worst ideas.
Yes a match is free money so definitely a good deal. But investing beyond that may not necessarily be, at least via traditional contributions.
So the optimal tax advantaged move is to take the match, pull everything out and take the tax hit, then reinvest it into a regular brokerage?
Oh wow. This is really useful to know. Might have to rethink my entire strategy
Can you explain this a bit more? I’m not aware of this or who it would benefit the most. Thanks!
Sure. I hate to say this basically benefits people with very large accounts. It’s not good tax policy, honestly, but it’s there, so the middle class should try to use it as much as possible. Basically, let’s say that every year, you invested $10,000 in just a regular Fidelity brokerage account instead of a 401k and you’re a pretty passive investor and just bought some index funds with it. If you’re in the 20% tax bracket, it cost $12,000 of income to get $10,000 net income to purchase that. If you don’t sell those share for two years, then all the gains become long-term capital gains and up to $98,000 a year!! are exempt from income taxes. So you could sell it right then and pay no taxes on the gains. So let’s say you held it for 20 years and now the total is $30,000 of which $20,000 is gains. If that were in a 401k, you’d be paying taxes on that extra $20,000 (as well as now paying that tax on the original $10K) no matter how long over time you took it out. So you’ll eventually pay $4,000 on those gains (in a 20% tax bracket) as well as the $2,000 on the original that’s just been deferred. So really you just paid $4,000 more in taxes. 401k’s should be gone as long as this tax provision changes. This break on capital gains is basically a ROTH IRA without the hassles of one. And most people think they’ll be in a lower tax bracket in retirement, but as the brackets creep up over the years, that’s actually unlikely that you’ll even be in a lower bracket and so you’ve done nothing except make all your gains subject to the highest type of tax (regular income). All of this is terrible policy, but it’s there. And more people should gain their financial flexibility back in the troubling times.
Thanks for explaining that, super interesting and makes sense. We’re bordering on the next tax bracket so it may apply to me soon. Only clarification: you’d still be paying capital gains (10%) on that $20,000 of growth, so you’d just be saving $2k, not $4k, correct? Still significant and the ability to move it freely (after a year) without being tied to specific funds is a huge win.
Not necessarily. There is actually a ZERO percent capital gains tax bracket - taxable incomes up to $49k for single filers or $99k for joint filers are taxed at 0% rate (by contrast the lowest bracket for ordinary income - which is what Ira distributions are - is 10%). I personally paid 0% in taxes for 2025 even with an AGI over 6 figures; my itemized deductions offset my ordinary income, and I realized just under $50k in capital gains, which were taxed at 0%!
Elizabeth is right. You’ll actually pay zero on that gain as long as it’s “long term”. And if you’re really good, you could wait the two years to turn something into long-term; sell it; owe no taxes on it; and turn around and buy it right back in order to create a new higher cost basis for yourself. With a little bit of diligence, you won’t ever pay taxes on any of the gains you make. Much like a Roth without the contribution limitations.
You’re not guaranteed tomorrow, so live for today! Have goals and missions that you want to achieve, and make things happen in the present. You’re only young once, so make the most of it.
I’ve met millionaires who panic over a $10,000 surprise expense.
On paper, they’re financially successful. Their retirement accounts are full, their net worth looks impressive, and by most measures they’re doing everything right.
Yet they still feel constrained , sometimes even poor. because so much of their wealth is inaccessible when life actually happens.
Not because they lacked assets.
Because they lacked access.
I’ve seen people with substantial retirement accounts worry about a broken furnace, a job loss, or helping an adult child because so much of their wealth was locked away.
Liquidity doesn’t always improve a balance sheet. But it often improves peace of mind. Money does different jobs. Some is for the future. Some is for flexibility. Some is simply for helping you sleep at night.
I think many people underestimate the value of that last one.
This was really eye opening and made me rethink my strategy, thank you for this
Great read. We're in the process of minimizing retirement contributions in favor of more toward our taxable accounts and cash.
Some interesting ideas here.
Perhaps the article should be titled ‘An Alternate Way To Save For Retirement’.
Well that wouldn’t get many clicks. ;) In all seriousness though many people should stop altogether and focus on other goals / start spending.
I purposely avoided the term ‘clickbait’ but I understand the your motivation.
Wow thank you for the unconventional take on this topic! One thing I’ve learned from my parents also complaining about paying so much tax on their 401k withdrawals is that you want to have a diversified retirement plan - a mix of 401k, Roth, brokerage, and cash. They all have their pluses and minuses.
Totally agree! Tax diversification is possibly as important as asset allocation.
What a great post and love this alternate view. I’ll chime in with the inheritance factor. If you plan on not emptying your accounts in order to leave something for your kids, a taxable brokerage and Roth IRA are ideal inheritance accounts - whereas an inherited IRA must be emptied within ten years and since your child will likely still be working and at the height of their money making potential (mid forties to mid fifties) when a parent dies, any withdrawals will be expensive in terms
Of taxes. Meanwhile on the taxable brokerage they will get a step-up and can control distributions, and a Roth does affect their taxes at all.
Thank you so much for sharing your writings
Thanks for reading!
I don’t think I’m in a position to stop putting money into retirement, but having just worked my first season for an online tax prep company, I can say AMEN to retirees resenting their tax bills! I spoke to several who owed significant underpayment penalties but refused on principle to pay quarterly estimated taxes. I couldn’t tell you what that principle was, exactly, but they were adamant about it. 😂
My dad is like this! He told me years ago that taxes were such a mental beating for him that he refused to do them more then once a year and would rather pay the penalty (this from someone who is otherwise VERY cost conscious to the point of being cheap). 🤦♀️
I’m a ‘super saver’ but when you think of the mental conditioning built over 40+ years, and the public narrative reinforcing retirement, it’s no wonder people are as nervous as a cat to tap what they saved. So many die early and pass it on. Although it’s noble, is it a fulfilled life or just an exercise in restraint. I guess it’s personal. Without kids my concern is spending it without spending too much
The fretting over RMDs is so real. I was talking to an 80-year-old gentleman in the tax office today who was upset over $131,000 in capital gains (mostly mutual funds). People tell me they “don’t feel rich” and balk at paying taxes.