Comments on: The hidden 'tax' on your 401(k) … http://7million7years.com/2008/09/17/the-hidden-tax-on-your-401k/ How to make 7 million in 7 years ... Thu, 24 May 2012 09:20:05 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: AJC http://7million7years.com/2008/09/17/the-hidden-tax-on-your-401k/comment-page-1/#comment-1752 AJC Wed, 17 Sep 2008 13:53:51 +0000 http://7million7years.wordpress.com/?p=639#comment-1752 @ Moom - There are US Mutual Funds with much lower fees than that (e.g. selected Vanguard or Fidelity Index Funds) but these are hardly the ones to be recommended by 401k providers, as the study found. Also, these providers put their own fees on top. @ Moom – There are US Mutual Funds with much lower fees than that (e.g. selected Vanguard or Fidelity Index Funds) but these are hardly the ones to be recommended by 401k providers, as the study found. Also, these providers put their own fees on top.

]]> By: moom http://7million7years.com/2008/09/17/the-hidden-tax-on-your-401k/comment-page-1/#comment-1751 moom Wed, 17 Sep 2008 09:12:00 +0000 http://7million7years.wordpress.com/?p=639#comment-1751 The fees you quoted are much higher than typical US mutual funds like from Fidelity. Contrafund for example has a 0.89% expense ratio and no sales fees. Aussie managed funds do typically have much higher expense ratios. There's another tax on 401ks though that people don't often mention. Withdrawals are taxed at ordinary income tax rates rather than long-term CGT and qualified dividend rates for stocks. So you compound tax free for a long time but then pay higher taxes to withdraw than you'd pay on a taxable account. This doesn't apply to Australian superannuation of course which is taxed at 10-15% going in and along the way but is tax free for earnings and withdrawals if you take an income stream after age 60. It's almost impossible to get the money out before 60 (for those of us born after 1964) though in comparison to the US retirement accounts. The fees you quoted are much higher than typical US mutual funds like from Fidelity. Contrafund for example has a 0.89% expense ratio and no sales fees. Aussie managed funds do typically have much higher expense ratios.

There’s another tax on 401ks though that people don’t often mention. Withdrawals are taxed at ordinary income tax rates rather than long-term CGT and qualified dividend rates for stocks. So you compound tax free for a long time but then pay higher taxes to withdraw than you’d pay on a taxable account.

This doesn’t apply to Australian superannuation of course which is taxed at 10-15% going in and along the way but is tax free for earnings and withdrawals if you take an income stream after age 60. It’s almost impossible to get the money out before 60 (for those of us born after 1964) though in comparison to the US retirement accounts.

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