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When you are a high income earner and receive a W2 you are limited on tax deductions. So in order to reduce your taxable income you have to find out ways to do this. The reason I maxed out my 401k investing in index funds for 10 year was to reduce my taxable income and pay less taxes. When I started working at my corporate job back in 2011 I knew I wanted to be a millionaire and I wanted to do it in 10 years. In order to become a millionaire that means you have to invest your money but 1st you have to have money to invest. Second you need to know how to keep that money in your pocket by learning how your money is being taxed at you job. I calculated how much money I would pay in taxes if I didn’t contribute to my 401k and what my paycheck would be. Then I calculated what my paycheck would be if I contributed the max amount. If you want to learn how to do this check out my other video and I explain step by step.
After figuring this out I decided to max out my 401k and the reason I was doing this was because that meant I got to keep more of my money that I worked so hard for and my money wouldn’t go to paying taxes. The money would be inside my 401k growing exponentially and compounding over time. Another reason I maxed out my 401k was because my company would match 100% up to $5000. So every year I was maxing out my 401k and receiving $5000 by doing this. This means the small sacrifice I made by maxing out my 401k would ultimately set me up for life.
Now all I had to do was select a good fund to invest inside my 401k. After comparing all the investments I decided to select an S&P 500 index fund that tracked the stock market. I have only invested in S&P 500 index’s or similar funds inside my 401k because these funds have the lowest expense ratios and highest rate of return. Now I know people will say you cant pull money from your 401k before the age of retirement but you actually can in the form of a loan to yourself. If you want to now how to avoid PMI (private mortgage insurance) when you buy a home check out my video in this video I talk about pulling a 401k loan out to put a down payment on a house.
If you are reading this I’m definitely not making these video’s to brag, I’m simply sharing what I’ve learned and what has helped me to become financially independent. The whole process takes lot of time and planning. I love running the numbers and making calculations to come up with the best decisions. I am a mechanical engineer and this is how I think. Please like and subscribe and smash that like button.
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This is Not financial advice. This is For ENTERTAINMENT PURPOSES ONLY. Please consult a licensed, qualified CPA for professional tax advice….(read more)
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Congratulations! Over 24% average return is impressive.
Interesting content, videos like this and insight from an expert goes a long way.
Balance update since market shift?
Hi, I’m trying to better understand 401k investing. How do you feel about vanguard?
Excelente!
Making six figures a year makes it easy to max out retirement accounts! Try doing that making 50k a year…. not happening.
Could you explain to me a little better about reducing my taxable income on the 401(k) does that mean that I want a Roth over traditional I always thought that it would be better to have the extra money accumulating income rather than paying it off in taxes upfront
I have a lot in my 401k and I am 45. Very worried about the future of the dollar. Will it be worth anything in 10 yrs? This year instead of maxing out I pulled back to 9% contributions instead of 19% and buying physical gold w the difference.
you might reduce your taxable income for now but that 401k tax is just withheld for them to be taxed out later on a higher rate.
To me investing 401k is just to harvest the benefit of free money from my employer. That's technically free money.
Great return brother. Imagine if you chose a roth 401k over a small yearly tax break. Keeping 100% of your retirement vs a $3-$5k a year tax return or break. Over 20 years a $5k tax return is 100k vs keeping all of your retirement which at tour pace you will be taxed heavy and outweigh the 100k in tax returns you earned.
What about having a brokerage account if you want to have more flexibility and/or retire early? Thanks
If your 401k has a Roth option, I would seriously consider contributing to that instead of the traditional 401k. Tax rates will go up starting 2026 – your tax rates will never be lower than it is now. It's also easier to pay the tax on the seed instead of the harvest (when you retire).
Tnks
Great stocks and I just bought in on them, but I'm interested in making short term profit, let say turn a $150K to $500k in 6months, I'd appreciate tips on how what stocks to buy to make this much profit.
Hi Daniel, Great info. I contribute regularly, to my 401k Roth. I really hate paying taxes, I would rather pay taxes Now, and later my money is Tax-free. Thanks.
My company does not let me manage the funds, is there anything else that I can do to manage my funds,? Do I need a broker ? Nice video.
Yes technically your paycheck is smaller. The way I love to look at it is every 7 years my 401K contributions double So put 19000 in and 38000 and 76000 and 152000 and 304000 You get the point And you'll get all your money back plus 4 doubles It's not how much you make it's how much you save.
I'm contributing to roth 401k.
I'm still debating which is better for me.
Thanks.
Hey Daniel, thank you for the breakdown on your 401(k). This is very helpful. Now I see the power of diversifying beyond a target date retirement fund. Looking forward to seeing more of your content!