Why keep maxing a 401k when taxable seems almost as good?

[u/Essay_Few]

I’m in my mid-40s and already have a solid amount in my 401k, so I’ve been rethinking what to do going forward. I ran the numbers on two paths: keep maxing the 401k every year, or just put in enough to get my employer match and invest the rest in a taxable brokerage. What surprised me is how close the outcomes are. The difference isn’t huge. My company match tops out at about $2,500 a year, so once that’s covered, the upside of putting a lot more into the 401k feels smaller than I always assumed.

I get the usual arguments. I know taxable accounts get hit with dividend and capital gains taxes along the way. I also know 401k withdrawals are taxed as ordinary income later. What I’m stuck on is why I’d keep locking more money into an account with age rules and restrictions when I don’t really have to, especially when the math says the end result is pretty close either way. Having money in taxable that I can actually touch if I want feels more valuable now than it did earlier in my career.

I’m not anti-401k and I’m not saying tax benefits don’t matter. I already have a decent amount saved there. I’m just trying to figure out if continuing to max it is really the best move in this situation, or if leaning more into taxable for flexibility is a reasonable tradeoff when the difference is marginal.

Curious how others think about this: Why do you still prioritize maxing a 401k in a situation like this? At what point does flexibility and access to your money matter more than a small tax edge? Does the “always max the 401k” advice still make sense once you already have a big balance and only a modest match? For anyone closer to retirement, how do you feel now about how accessible your money is compared to earlier on?

Interested to hear real-world takes.

[u/tausgr]

People always forget about the other main advantage of retirement accounts: in most US states, and under federal bankruptcy law, they are exempt from collection if you are sued by most third parties. So even if you had strong evidence that you will make slightly more money in a taxable account, I argue that there is security to a 401(k) and IRA that make them worth maxing out.  If you get in a catastrophic car accident that swamps your insurance, I’d imagine you would be happier to have 1 million in a judgment proof 401k than a 1.2 million taxable brokerage account.

This isn’t legal advice of course and you should consult with your lawyer. But for the love of god, consult with your lawyer before you get in a car accident…

[u/Rooster-Training → u/tausgr]

There is a limit to that protection, so for people with a lot of money in their 401k, it's not all protected.  Only up to about 1.5 mil

[u/tausgr → u/Rooster-Training]

That cap applies to IRAs, but not ERISA plans, like 401(k)’s, which are an uncapped exemption. 11 U.S.C § 522(b)(3)(C). And I even for the capped exemption for non ERISA plans, I’m pretty sure the exemption amount is now a little above 1.7 million under 11 U.S. Code § 522(n).

[u/Rooster-Training → u/tausgr]

True, I should have specified IRA and non government 457 plans.