1)If you have access to a 401(k) and a traditional IRA and you are not using them, you are paying more in taxes than you have to. This also means your initial investment is lower than it potentially could have been.
Not necessarily to the first sentence, a flat "no" to the second.
1) Pre-tax investment accounts like a traditional 401(k) or IRA are only a good deal if your tax rate is lower in retirement than it is when you are contributing. That may or may not be the case here. Money you withdraw from a pre-tax investment account is taxable as normal income when you retire. Most people's tax rate in retirement is lower than when they're working, primarily because you don't need to withdraw as much to live as you need to make to live + invest. However if the tax rates go up in the future or they end up spending a lot of money in retirement it's possible they'll have to pay more in taxes by using a 401(k) or IRA.
2) Your second sentence assumes that it's mathematically better to defer paying taxes because you have a higher "initial investment". It's not. Assuming that your tax rate in retirement is equal to your tax rate while your working, they are mathematically guaranteed to be equivalent due to the associative property of multiplication. The higher "initial investment" is no better than investing with a lower initial amount but then not having to pay taxes later.
P (principle) * 0.85 (less 15% taxes) * 1.07 ^ 20 (invested at an average of 7% interest for 20 years)
is equivalent to
P * 1.07 ^ 20 * 0.85
The order in which you multiply makes no difference at all.
Yeah, big reasons. Do the ROTH first, but a 401k is still a better deal than a taxable account for you.
Possibly correct, but it's not as clear cut as you seem to think.
a) 0% is less than 15%. You will be able to take out about 20k/yr out of a tIRA tax free when you retire.
It's only 0% if he will not have to pay any income taxes at all on the money he withdraws from his tIRA. How do you figure on the $20k bit? It seems to me that the standard deductible is $12k for a couple, and after that they'll be paying 10% income taxes.
Think about it this way: for every $1000 you sock away in pre-tax retirement accounts, you save $150 on income tax. It's like an instant 15% return on your investment.
You only pay taxes on that money if you aren't able to do a Roth pipeline, which you should be able to do if you're willing to also allocate savings to taxable accounts during your accumulation phase.
Incorrect, you still have to pay income taxes on money converted through a Roth pipeline on the year that you convert it from a traditional IRA to a Roth IRA. A Roth pipeline is a method to avoid paying the 10% early withdrawal penalty, not income tax altogether.
As such your first paragraph is incorrect because they would not be saving $150, just deferring taxes until later, when it may be more or less than the equivalent of $150 (probably less, but could be more).
All that being said, I agree with Frankies Girl and Sol. If I were you I would max out my contributions to Roth accounts (IRA, 401k if you can get one) to lock in the low tax rate and guarantee that you will never have to pay taxes on earnings, regardless of what your income does later. After that I would still invest in a traditional 401k, but only because I believe it is likely that your average tax rate in retirement will be lower than your marginal tax rate now. If you don't think that's true then don't do it. And yes, do take seattlecyclone's advice and look into a Solo 401k. You are an employee of your company, and as such you can contribute to a 401k that your company (you) sets up, and can contribute as both the employee (you) and company (you), enabling you to contribute much more than the employee-alone limit of $17.5k. Worked wonders for my wife and I's taxes this year.