Hello,
As I attempt to become more self-educated and invest for most tax efficiency, I have come upon the seemingly age-old question of what to do after contributing to the employer match to a 401(k) with high (about 1.5%) fees with seemingly decent historic returns (Manning and Napier target date 2050 fund).
Some threads discuss the merits of the tax breaks of 401(k) vs how much is lost to fees. I have found the rough number of 2% or if the number of years at current employer less than 30.
My wife and I are in the marginal 25% tax bracket. When looking into taxable accounts, I see that currently there is no long-term capital gains tax on accounts if in the 15% tax bracket.
So I am trying to figure out the math behind investing in a high fee, moderate return 401(K) after contributing to employer match and the amount saved on current income tax, vs. investing in a low-cost, tax efficient index fund, knowing that we will be in the 15% bracket after retirement (if brackets stay the same, inflation adjusted, over the next 20 years).
I also think that there is an opportunity cost somewhere in there from the standpoint of the money in form of taxes saved with investing in 401(k) can be invested now and suffer the miracles of compound interest (and 401(k) fees) whereas after tax money obviously has already had a hair cut. But, this money, post gubmint hair cut could potentially grow tax free.
I have found one thread which discusses this, but without the actual math behind it. (Unless I am missing something obvious and it really is that great of a difference).
Thank you,
Futurehermit