JAN 22
I saw something interesting on the Suze Orman show last night: She recommended against contributing to your 401k, beyond what is required to guarantee any employer matching. She based her opinion on the following points:
  • Taxes are at an all-time historical low right now.
  • A 401k only helps you if your taxes will be lower in the future than they are today.
  • The government is spending money like crazy and running up the debt.
  • Taxes will have to go up at some point to pay off all of this debt.

Thus, her conclusion was that taxes are most likely lower now than they will be in the future, thus the 401k is not a good idea.

When she first said "don't do the 401k" , I thought she was crazy, but she has me wondering now. I need to ponder this a bit. In particular, I'm interested in the impact of state taxes (i.e., I live in a state with tax now, but may live in a state with no tax in the future) and also the effects of taxation on dividends and capital gains (paid outside the 401k, not paid inside).

tags: investing
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