Anyone not maxing their 401ks (that’s able to)?

Moved to a buyside job where there is no employer matching/contributions, but there is coinvest opportunities. Got me thinking, is it really worth it to max my 401k, when the only significant benefit is the ability to contribute on a pre-tax basis? I'm not super keen on retiring early (personal choice - understand this is a bit naive as a 20-something), but I honestly feel like I'd rather use my capital to contribute to coinvest opportunities, buy real estate, invest in public equites on a shorter time horizon, etc, than lock up my capital until I'm 60. Especially since I don't have employer matching benefits. 

I completely understand the benefits of saving for retirement and the tax advantages of a 401k, I'm really just curious if anyone else has a similar outlook. 

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (38)

  • Intern in IB - Gen
May 2, 2021 - 9:45pm

Yes, I wrote this in another thread and was given MS. The lack of liquidity is not worth it unless you have a very large income. Not saying I need all my money to be cash and liquid in my 20s but I much rather be able to at the latest enjoy my money at 40 than when I'm 60 and there's no point in anything anymore. Just being honest. Now, roth 401k may be a different story because I believe just like a roth IRA you can take out all your contributions at any time penalty free if I'm not mistaken.

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
May 3, 2021 - 3:28pm

It's laughable to say that when you're 60 there is no point to anything anymore. What a doomer take. You are plenty athletic and cognizant enough to enjoy fabulous world travel and all manner of events when you're in your 60s, bro. You can also withdraw 401(k) penalty free if you're laid off, fired, or quit a job from age 55-59 1/2 (IRS Rule of 55 ), so it's really age 55 that we're talking about, which is the average age of a CEO.

You will also have other sources of money when you're in your 40-50's, presumably you still have worked or at least have invested outside of retirement accounts? But life becomes a lot more expensive in retirement for a number of reasons including inflation (and particularly real asset/expense inflation, not the Fed measure), healthcare costs, and lifestyle creep. Might as well have part of your money set aside that is tax advantaged.

Be excellent to each other, and party on, dudes.
  • 1
May 4, 2021 - 4:27pm


You are plenty athletic and cognizant

on that topic, might as well max out a HSA too.

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

May 3, 2021 - 1:47am

Seeing as you have zero saved for retirement, I would put as much of it as you can away into your 401k (Why you aren't doing that already is beyond me - I mean seriously, It's a straight dollar reduction on your taxable income until you hit the cap. You also might be able to get the benefit of tax deductions - on a pre-tax basis for a Traditional IRA - or qualify for a Roth IRA.) just to start saving for your retirement. I'd sock some of it away for an emergency fund and maybe do something nice with a little bit of it.

Most Helpful
  • VP in IB - Ind
May 3, 2021 - 11:19am

It's only $19.5k a year and it reduces your tax liability. Why is this even a question?

May 3, 2021 - 11:21am

Because people are dumb. 

Source: Many of the posts above yours. 

Commercial Real Estate Developer

  • 2
May 3, 2021 - 4:31pm

If 19k, or whatever the 401k max is these days, is "too much money to lock up," you're probably talking about retirement planning on the wrong platform. If you can afford to, you obviously max out the 401k AND Roth IRA. If you have coinvest, you're probably not worried about 19k.

Putting lots of your money in co-invest when you're young is a great idea because when your fund collapses, you lose your job, but at least you also lose your savings.

  • Intern in IB - Gen
May 3, 2021 - 4:39pm

No, the issue is why not just go with the Roth 401k and have at least that option to freely take out those contributions down the line. The AFTER-TAX difference is what is a silly amount to worry over even if taxes somehow magically go down in the future. The Roth IRA is seperate and I'm sure no one in any job is fretting about the 6k there. 

  • Incoming Analyst in IB-M&A
May 3, 2021 - 5:10pm

you go with the traditional at that level if you believe your taxable income will probably be lower in retirement than what it is now (which i personally think it will be since I wont be working). You defer the taxes to retirement with the traditional and take the tax break now, instead of vice versa with the roth 401k

May 4, 2021 - 8:30am

Tax rates have "magically" gone down several times, as recently as 2018:…

Biden will likely raise them near-term, but who knows wtf will happen thereafter, or what the timing will be specifically for your peak earning years.

There's also the likelihood of spending your peak earning years in a higher tax state vs. retiring in a lower tax state, or simply deciding later in life (once you're a few years distanced from the IB or bust mentality of a college student) that you want to chill out and can retire with less income than you aspire to have right now.

I'm not anti-Roth 401k at all, I think its an awesome option and I put a lot of contributions into it, I'm just advocating diversifying your tax exposure and giving yourself some optionality later in life.  If you are as high earning as you plan to be, I wouldn't make early withdrawal options a priority if that ~$19.5k annual contribution is peanuts to you anyway, since you'll have plenty leftover to fund your lifestyle now (and even more if you use the traditional option to lower your current tax liability!).

  • Associate 2 in PE - LBOs
May 3, 2021 - 6:18pm

If you wan to hear the opinion from someone other than incoming analysts and interns, I agree with you. I think if you think you'll stick with PE this should be not that controversial even. You have access to some off-market opportunities AND you'll make more than enough to fill up your retirement pots later down the line. 

More practically - maybe try to figure out when you'd theoretically like to retire, then figure out how much money you'll need access to, and from there you can figure out how much you want locked up in a fatter retirement stash and a leaner (but accessible) pre-retirement pile

May 3, 2021 - 6:51pm

What people here are forgetting is that 401k contributions are deducting from income that is taxed at the marginal rate. Even if you're an IB analyst, that last 20K of your income (bonus) will end up getting taxed at a MARGINAL rate of close to 50% in NYC between local, state and federal taxes--even though your EFFECTIVE tax rate is much lower. $20K that I have to pay a 10% penalty on to withdraw in the future is absolutely worth more than $10K now after taxes. This isn't even a question - it's free money.

Obviously, the above is not as applicable if you live in a low cost of living state and earn much less, but this is WSO after all.

May 4, 2021 - 2:30am

I'm sorry, but this is another level of stupidity. If you have no intention of saving any money whatsoever, then fine, don't do it. But most people in finance want to save--all a 401k does is allow you to save with pretax money instead of post-tax money, which makes a huge difference for high earners (your first point is irrelevant as it just talks about how you're taxed, not how much).

It'd okay to be an intern, just don't be idiotic.

May 4, 2021 - 10:37am

As people have repeatedly tried to explain to you, the marginal tax rate for someone making 180k in NYC is 44%. That is not going to be fixed in the tax return, that is the actual rate you pay on the last dollars in - i.e. the money you will be taking pretax in a 401k.

Feel free to try out this calculator and see for yourself:

Free Income Tax Calculator - Estimate Your Taxes - SmartAsset

this also means that a 19k 401k contribution only costs you 12k in take home pay. really? you can't afford 1k/month in take home locked up, in order to give yourself a much better chance at long term compounding retirement income? guess your bonus isn't so big after all...

May 4, 2021 - 9:38am

How do you guys think about cash savings though, for big ticket purchases (home down payment, wedding, whatever).

I am currently contributing just enough to max out my employer match, and then investing any additional cash savings into a regular brokerage account. I could easily hit the max contribution for 401k (~$19k or whatever), but then my investable cash stack would be significantly lower. I'm anticipating that I'll buy a home in the next 10 years, so it makes sense to me to contribute a bit less to the 401k right now (and increase traditional investment accounts which I can have access to medium-term), but at least max out the employer match. What do you guys think? 

Start Discussion

Total Avg Compensation

May 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (35) $364
  • Associates (194) $234
  • 2nd Year Analyst (110) $151
  • Intern/Summer Associate (96) $145
  • 3rd+ Year Analyst (26) $145
  • 1st Year Analyst (402) $131
  • Intern/Summer Analyst (327) $82