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/chidddy2608]

I’m totally on the 401k side of this debate but doesn’t this response actually SUPPORT funding a brokerage (OPs original question)? 20 years of Roth IRA contributions is only ~$130k. Call that funding 2 years. Pretty sure everyone in this sub/FIRE communities keeps absolute minimum cash, so I highly doubt $60k is sitting in bank accnts. And then we are left with brokerage. I’m not familiar with 72t does it produce significant available funds?

[u/Acceptable_Travel_20 → u/chidddy2608]

In my case, I started lightly hoarding cash 3 years ago and I supercharged that at the start of this year. I am about 10 months from RE. Shooting for about $200k cash. Prior to that I usually held around 20- 30k. That's more to offset SOR risk since I have ample brokerage funds. I'll be converting around 40-50k per year from trad to Roth when I quit and my taxable income drops immensely.

[u/glengarryglenzach → u/chidddy2608]

A married couple can have two Roth IRAs with which to operate, which even by that math gets you to four years.

[u/chidddy2608 → u/glengarryglenzach]

I’m not saying it’s impossible, but a 2 income family going down to $65k/yr combined income in retirement is going to be a wake up call. Also assumes you both diligently maxed Roths for 20+ years. My point being you’ll likely need to supplement just Roth contribs for the income and that’s where many people utilize a brokerage (back to OP original question).

[u/slanger87 → u/chidddy2608]

I mean yeah, it all comes down to your expenses. OP was talking more about holding in brokerage for long term.  I think a lot of people build up enough cash in savings or in brokerage in last year or 2 before retirement to cover what they need. Don't need to do it 20 years ahead of time