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Is 401k as good as it sounds given the way it is taxed?
When you are investing for 40 years, you will have taxable events before retirement.  You'll need to pay tax along the way, which will eat away at your gains. For example, in your taxable account, any dividends and capital gain distributions will need taxes paid each year.  In your 401(k) or IRA, these are not taxable until retirement. In addition, what happens if you want to change investments before retirement?  In your taxable account, taxes on the capital gains will be due at that time, but in a retirement account, you can change investments anytime you like without having to pay taxes early. Finally, when you do pull money out of your 401(k) at retirement, it will be taxed at whatever your tax rate is at retirement.  After you retire, your income will probably be lower than when you were working, so your tax rate might be less.