LIFO taxation? Do you really get paid to give financial advice? LIFO has nothing to do with 401Ks, Roth IRAs, or traditional IRAs? LIFO only applies when basis exists and it doesn't in any of those accounts.
Also, the first $1.5 Million of estate (lots of changes in this area in the last few and the next few years) is tax-free anyway. The estate tax applies to very few Americans. Hardly a draw-back of the 401K since it applies to every other investment. The only work around for estate tax is permanent value life insurance which comes with its own list of downsides to include lack of liquidity, lack of transparency, huge costs, and abysmal returns over the first couple of decades.
I'm more than capable to "do my own numbers" (excel is available to the masses, believe it or not) but the alternatives to which you refer are simply ways for financial advisors to get their cut.
Pre-tax growth=post-tax growth unless your effective tax-rate changes. This could happen by having less or more income during retirement or by changes in the tax brackets through an act of congress. I'm quite familiar with the variables affecting a Roth vs traditional decision. However, what you are advocating is a traditional vs nothing decision, which is foolhardy. Let me demonstrate the numbers for our viewers.
Let's take a California physician in a 35% tax bracket with a 9.3% state tax. His effective tax rate is 44.3% on this $15.5K he has to make a decision with. Should he A) Put it in his 401K (unmatched) or B) Invest it in another way?
Option A: Let's assume he gets 8% growth over 30 years. By the time he is ready to begin withdrawing the money he will have $156K. Of course, at this time he is retired, lives in Nevada (loves the slots) and his marginal tax rate is 25%. Of course, the effective tax rate on this withdrawal is even less than that thanks to the standard deduction and the graduated tax rates. But let's go ahead and apply the 25% tax rate to the entire withdrawal. He is left with $117K.
Option B: First thing he has to do is pay taxes. So let's multiply $15.5K*0.557. He has $8835 left to invest. Since his investment is now in a taxable account he will have to pay taxes on it as it grows (unless he invests in real estate or allows somebody to talk him into a permanent life insurance policy.) What kind of a rate of return will he need on this money to equal the $117K? Keep in mind when the money is finally withdrawn he will still have to pay capital gains taxes (let's assume they remain constant at 15%.) He now requires a 9.5% return AFTER TAXES to get to the same place as if he had used the 401K.
But wait, you say, what about the real estate option?
He still has to deal with the fact that he only has 57% of what he made left to invest. After that, you have to deal with a real estate market which over the long term has only grown at the rate of inflation. You cannot assume that what we experienced in 2002-2006 will ever repeat itself. The only reason anyone ever makes a decent return on real estate is due to high amounts of leverage. Plus, when you invest in real estate, you have gotten a second job. Most physicians don't need a second job.
But wait, what about permanent life insurance?
Like I said before, the lack of liquidity, lack of transparency, reliance on current tax law, low initial returns, and high costs make this an unsuitable investment. See this very lengthy discussion for more details:
http://www.diehards.org/forum/viewtopic.php?t=8844&highlight=northwestern+mutual
Before you donate money to the board (which I'm sure will be appreciated) perhaps you could tell us why you are giving away your services (you get paid to give financial advice, no?) for free to this board. Is it only out of the goodness of your heart? Or are you advertising?
Based on this:
http://forums.studentdoctor.net/showthread.php?t=453685
I'd say you're advertising. That's fine. No problem with that. Everyone has to drum up their work from somewhere. But people should realize that your conflict of interest colors your advice.
