Before you speak, do the math and you will discover are dead wrong. Simple math and Accounting 101 tells you the 401k is a liability to you and an asset to Wall Street, US Government, and to your banker. The 401k earns money for Wall St, Govt in future taxes, and your banker whom you pay mortgage interest to. The 401k does not work for you, it works for them. You take 100% risk in stocks, and they get 80% of the profits. What will your tax rate be when you retire? Did you know if you are diversified into mutual funds, they typically take 1% of your entire principal per year for “management fees”. Plus if you have home, automobile, or credit card debt, contributing to the 401k will keep you poorer longer. For instance, I’ve had $20k tied up in a 401k, which I could have withdrawn 5 years ago. After taxes I would have wound up with $13k to pay down a 7% mortgage. By keeping the $20k ($13k after taxes) in the 401k it cost me $25,000 in interest on the $13k, in just 5 years! That is how a 401k keeps you poor, and I’m piping mad about it.

That eligible $20,000 in the 401k before taxes COST me $25,000 in after tax money, in just 5 years.

Also figure up, after 30 years of contributions, and mutual funds getting 1%/year of the principal, they essentially get 25% of your total money. Then what will your tax rate be when you retire? I bet my tax rate will be higher. That is how they get 80% of your profits……just do the math in an Excel spreadsheet, and run the numbers…..The 401k works for the govt, wall street, and your banker…..It NEVER works for you. What’s better, to pay for a house in 15 years, and be debt free for 15 years the Dave Ramsey way, or to pay on a house 30 years AND contribute to a 401k? That house will cost you 3 nearly times as much in interest because you chose to contribute to the 401k. For me, I’d rather own 3 more houses! Do the math. Do the accounting: simple assets and simple liabilities. You can only classify 60% of the initial principal value of the 401k as an asset in your name. Remember taxes due today and in the future are classified as liabilities. Unpaid “management fees” to mutual funds are liabilities. Interest you are paying on your home, car, credit cards are liabilities you have to pay for. Why would you invest in a liability like a 401k? Plus the 401k laws change yearly (See amendments to the ERISA act), so your money is subject to the govt changing the rules and extending the retirement age. Will you be alive to withdraw from the 401k? Plus if the market goes down, wall street takes a bigger chunk of your profits (1% of your total principal). So the numbers and laws and regulations are against you getting ahead in a 401k. There are a lot of strings attached that no mutual fund salesman will tell you about (after all, it is mutual fund salesmen that persuade you to contribute), and the government loves it when you contribute because it earns income for them! Find me one person who got rich from a 401k that was “diversified an a portfolio of mutual funds”?

I will grant you some leniency on 401k for people who are bad with money and blow their money on vacations and new cars. But for people who can budget a check book, a 401k is a very baaaaaad “investment”. In fact, by design, a 401k is not an investment, it is a tool to keep you poor.

Please counter my argument, but I ask you FIRST, run the numbers on an excel spreadsheet for 20 years, considering good 8%-10% stock market growth with a couple 5% down years, dollar cost averaging, using today’s tax rates, mutual fund fees, and assume you have a 30 year mortgage paying interest to the banker. For simplicity, leave inflation out of the equation (if we do factor in inflation, your numbers in terms of purchasing power will be peanuts in the end). I have done this, and I have run it through my CPA (she at first told me the same old sales job language you have given, but after she discovered I knew what I was talking about, she dropped her “act” and started working FOR ME.).

http://www.cbc.ca/marketplace/2010/road_to_rich_dad/main.html