Here's an investment-strategy question that Go Curry Cracker's "Never Pay Taxes Again" post got me thinking about. I haven't seen this discussed much on MMM or the other finance and FIRE blogs I read. Maybe I've missed it and someone can give me some links. Otherwise, thoughts welcome.
My main investment vehicles are an employer 401(K) and a personal Vanguard account invested in index funds. What I'm struggling with is whether it's better to contribute the maximum legally allowable amount to my 401(K), which I could do, or whether I should just contribute up to the limit of my employer match and put the rest into my personal Vanguard account.
I get that because I can contribute to my 401(K) out of pre-tax money, it reduces my taxable income, which is what I want since I'm working and paying a higher tax rate than I will be in retirement. That makes sense.
However, my understanding is that when I start withdrawing from my 401(K), either at 59 1/2 or earlier using the Roth ladder method, that gets taxed as regular income. When I withdraw money from my taxable Vanguard account, it counts as capital gains, which is taxed at a lower rate.
I'm married, so assuming the laws don't change by the time I FIRE, I could withdraw up to $74,900 each year from my Vanguard account without paying any taxes at all. That ought to be more than enough to live on. Even the smallest withdrawals from a 401(K) get taxed at 10%. Plus, if you use the Roth ladder, you have to anticipate your spending five years in advance, so you have a lot less flexibility.
Doesn't this argue for putting as much money as possible into a taxable account? How do you all split your contributions between taxable and tax-free accounts?