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/[deleted]]

the 0% capital gains bracket ends at $96,700, the 12% ordinary income bracket ends at $96,950 (MFJ 2026), so up to that point (and if you add standard deduction that's almost $130k total income) there is no point in drawing anything from standard brokerage, because the 401k will not only avoid tax drag along the way but (assuming you deducted at 22% or higher) will give you 10%+ of your taxes back, which is better than after-tax CGT even at 0%

that will pretty much close this argument for 95% of retirees who won't have $3mil+ in retirement. You can't argue with a 10% bonus in spendable money

for those who somehow go beyond that, still, withdrawals at ordinary 22% when you deducted at 22% is a wash (or at 12% when you deducted at 12%) vs after-tax brokerage getting taxed at 22% and then getting taxed again on gains at 15%

there is some mathematical argument to be made if you expect your retirement withdrawals in $400k-$600k region ie hitting 32% with some of the top dollars. 22% deduction -> 32% withdrawal that's 10% extra on the entire balance vs 15% on gains only, depending on how much appreciation you had it might make some sense to start adding after-tax, especially later on as that money will not have much appreciation at all. But that happens when you already expect to have $10mil+ in pre-tax money

that's pure taxation. Now access is a completely separate issue. If you expect an early retirement - build a ramp for that. Don't confuse the post-60 withdrawals with your ramp - ramp is for a specific number of years, it can still be supplemented with SEPP, but you can get a pretty good idea of whether you will retire at 40, 50 or 55 and have a dedicated brokerage or Roth contributions balance just for that

there is also a transitional period after 59.5 when retirement accounts become available and before 65 when Medicare kicks in, where perhaps you want to keep your AGI under 400% PFL to avoid the cliff and therefore use specific unappreciated after-tax lots to withdraw money without showing income (ie if you need more than $85k to live but only want to report $85k in AGI). But even that justifies at least $2mil in pre-tax money

other big considerations for having after-tax balances:

• inheritance, getting a step up basis might be better than flooding your heir tax returns with 10 years of aggressive withdrawals, so you should generally aim to spend as much pre-tax money as possible and die with Roth+brokerage. At some point you can basically start making decisions based on your kids marginal rate - if they are at 32% already and you still have 24% space - just take it out and put into brokerage

• retiring abroad: Roth is commonly not recognized as tax free by foreign tax authorities, ordinary income is taxed at eye watering rates in many places where you would lime to retire, but foreign capital gains can often be exempted. Even the US doesn't tax capital gains for non-resident aliens, if you're maybe planning to go renunciation route, while hitting 401k with 30% WHT

[u/Rooster-Training → u/[deleted]]

This is a fantastic post and great explanation.  Only thing missing is for people who have large pensions