jefftk

Software engineer at the Nucleic Acid Observatory in Boston. Speaking for myself unless I say otherwise.

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A common experience in parenting is that a little kid will strongly prefer to play with toys that other kids are playing with, even when there are lots of others sitting around totally available. Conditional on another kid having chosen this toy out of all the options it's probably a better toy!

My guess is it's just that the fan is really big?

Since writing this I've learned more about how the air flows around ceiling fans, and I expect that (a) using slightly taller filters that extend below the blades and (b) adding a cowl would help a lot.

But your accounts would be up so much that you'd only need a tiny fraction of them to fund your immediate consumption

Maybe you want to use the money altruistically? To spend on labor, compute, etc?

I think a lot of this depends on your distribution of potential futures:

  • What sort of returns (or inflation) do you expect, in worlds where you need the money at various ages?

  • What future legal changes do you expect?

  • How likely are you to have a 5y warning before you'll want to spend the money you've put in a traditional 401k?

  • What are your current and future tax brackets?

  • How likely are you to be in a situation where means testing means you lose a large portion of non-protected money?

  • How likely are you to lose a lawsuit for more than your (unprotected) net worth or otherwise go bankrupt?

The first version of this post (which I didn't finish) tried to include a modeling component, but it gets very complex and people have a range of assumptions so I left it as qualitative.

The third example I give is exactly that, where Andrew produced our CD, so a lot of overlap!

Helping you be a better live band in the moment, though, seems like it's usually not going to come out of working with a record producer?

This is subtle and I may be missing something, but it seems to me that using a pretax 401k helps some but not that much, and the Roth scenario is only slightly worse than the regular investment account. Compare the three, chosen to be maximally favorable to your scenario:

  1. You contribute to your pre-tax 401k, it grows (and inflates) 2x. You roll it over into a Roth IRA, paying taxes on the conversion. Over the next five years it grows 1.3x. You withdraw the contribution and leave the gains.

  2. You contribute to your post-tax Roth 401k, it grows (and inflates) 2x, and then another 1.3x. You withdraw the same amount as in scenario #1.

  3. You put it in a regular investment account.

Let's assume your marginal tax rates are 24% for regular income and 15% for capital gains.

In #1 if you start with $100k then it's $200k at the time you convert, and you pay $48k (24%) in taxes leaving you with $152k in your Roth 401k. It grows to $198k, you withdraw $152k and you have $46k of gains in your Roth 401k.

In #2 your $100k is taxed and $76k (less the 24%) starts in the Roth. When it's time to withdraw it's grown to $198k. Of that, your $76k of contributions are tax and penalty free, leaving you with $122k of gains. To end up with $152k in your bank account you withdraw $115k, paying $28k (24%) in taxes and $12k (10%) in penalties. You have $7k of gains still in your Roth.

In #3 your $100k is taxed to $76k when you earn it, and then grows to $198k. You sell $179k, paying 15% LTCG, and end up with $152k after taxes and $19k still invested (but subject to 15% tax when you eventually sell, so perhaps consider it as $16k).

So you're better off in #1 than #3 than #2, but the difference between #3 and #2 is relatively small, and this is a scenario relatively unfavorable to Roths.

My claim isn't "Roth 401(k)s are strictly better than putting the money in investment accounts" or "Roth 401(k)s are strictly better than pre-tax 401(k)s" but instead "when you consider the range of possible futures, for most people Roth 401(k)s are better than non-protected accounts and other protected accounts may be even better".

The original version of this post had results from a simulation where the key results were off by a factor of 100. See the update at the top of the post for more.

Many cooperative board games run into a problem where if there are people of differing skill levels on the same team than the strongest player ends up doing most of the playing. Hanabi is the only multiplayer game I've tried that successfully avoids this, where every player needs to be engaged and trying their best.

Often, but not always: your plan might not allow in-service withdrawals, so taking the money out right away might require leaving your company.

In your 50% of worlds where we get AGI in the next 3y, do you have important uses for the money?

How does your remaining 50% smear across "soon but >3y" through "AI fizzle"?

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