Betterment vs. 401k with no match

[Miss Piggy]

My nephew (25 years old) is really proud of himself for contributing a little bit of money (about 3% of his $60,000 salary) to a Betterment account.

I asked if he was already maxing out his 401k, and he said he doesn't contribute to it at all because there's no company match. So then I mentioned the tax advantage of the 401k contributions. He looked at me like I'm a complete idiot and said "but you have to pay taxes on that money later when you use it." Well, yeah...but...and I had nothing. Am I the idiot here? Please give me something to say to him that would encourage him to see the situation differently. Or let me know if he's right.

[MDM]

At $60K salary he's probably paying 25% marginal federal rate, plus whatever state and local.  Even with 0% state tax, if he invests $9000 in Betterment it cost him $12000 pre-tax.  He then pays tax on the annual dividends and any capital gains.

If he invested in the 401k, he invests the entire $12K and pays no tax on the annual dividends and capital gains while still in the 401k.  If in retirement he withdraws while in the 15% bracket, he pays only 15% instead of the 25% it cost for the Betterment investment.

See To 401k or not to 401k? That is the question and Traditional versus Roth - Bogleheads for more.

Stick to your guns - you are giving good advice!

[Miss Piggy]

Perfect - thank you, MDM.

[Dicey]

What MMM said plus this: since you're working with gross dollars, not net, you are deploying more little green soldiers sooner. More money in, more money out on the other end.