401/403 money goes in tax free, grows tax free, and only gets taxed as “income” upon withdrawal. Your gains aren’t taxed which you misstated or misrepresented previously. ...
Everything is taxed on 401/403... gains, original dividends, etc.
It's all the same pile for taxation when withdrawn.
You pay ~20% (or whatever your ordinary tax federal rate is set at when you take it out). Every dollar... gains or original contributions. You also pay state tax.
If you are talking
unrealized gains in a 401/403, no... of course those aren't taxed (until withdrawn).
Ask anyone who is in retirement and doing 401k draws... it's ordinary income. It is all taxed. They keep maybe $75 net per $100 they withdraw... maybe up to $80 in Fla or TX or states with no state income tax.
401/403 = withdraw in retirement, standard tax rate on ever dollar withrawn
cash account = cash out anytime, pay capital gains tax (short or long term rate) on
profits only (contributions were post-tax)
Roth IRA = no tax if retirement age (tax paid before contributing)
trad IRA and others = tax is way too complex for scope here
... And I’ve never had a 401k that didn’t have low fee index funds that perform as well as other index funds. Fees in my current 403B aren’t an issue. ...
This is good.^
That's what we should all target (and check on the funds annually).
I have barely ever seen a 401/403 option that indexes as well as simple VTI, VOO, SPY, IVV etc (because the 401 plan ones have higher ER, pay less divi, or both).
...I was saying that getting 17% in 401k when the S&P did 26% (and Nasdaq QQQ did roughly twice that) this 2023 year is a bit of a problem. That is almost always the 401 funds' fees and lack of dividends. That lagging return versus market avg is a
HUGE problem over a decade or two. That should be brought up with employer 401 admins if possible.
For solo or SEP 401, fees/drag are no issue... can buy whatever one wants, trade options, anything... just like Roth or cash acct.
... There is another advantage for tax deferred accounts that everyone has ignored. There are plenty of people who currently pay state income taxes but upon retirement can/will relocate to a state without a state income tax. There are significant additional savings with putting away your money pre-tax in that scenario.
Yep, 100%. ^
Most people hope taxes overall might go down, they will be in a lower bracket, or they will be in a place with less/no state tax when taking withdrawals from pre tax accts.