Are you Pro or Against 401(k)?

[Scott Trench]

A recent article that I wrote on the BP blog received some criticism because I suggest that a 401(k) is one of the best ways to increase your net worth.

This strategy was criticized by a couple of readers and I thought I'd move the debate over here.  So here's my argument:

A 401(k) allows you to invest and grow your net worth tax free.  It reduces tax liability now, enabling you to have a huge portfolio to invest that will achieve outstanding returns for the lifetime of the account.  In my opinion, this is absolutely critical and its a real shame that someone would forgo the opportunity to take advantage of this tool.

The main counterpoint to this thought process is that the funds are not available until 59.5, and that they are taxed when they are withdrawn.  

What do you think?  Would you rather build up a ton of net worth through the 401(k) or have less assets to manage, but make them usable sooner?

I vote for the 401(k) and increasing my total assets under my name as much and as rapidly as possible.

[Richard C.]

I'm pro 401(k) when there is an employee match on offer.  No one who has an employee match through their employer should ever contribute less than that which is required to get the match; that is just giving away money.

As for the tax deferral question, I am personally more in favor of the Roth approach.  Yes, my tax bracket is higher now than it will be after retirement.  But I have no confidence that our current (pretty reasonable) brackets will still be in place in 25 years.  To take advantage of a tool that eliminates future tax liability entirely strikes me as a very, very good bet.

More broadly, I have noticed that BiggerPockets is full of fanatics.  Diversification is almost a foreign concept here, and there are quite a few people who will tell you that putting money into anything but real estate is foolish.  I think some of those people are very, very sophisticated real estate investors who do this full-time and with great success, and that most if not all of the rest are fools.

 I personally plan on working productively and earning a high income until after 59, and living WELL PAST 59, so the withdrawal issue is fine with me.