Advocating that people not take advantage of a 401k because something about the government potentially seizing it is basically saying you shouldn't save money at all.
No, the assets in the fund are owned by the plan administrator, and held for your benefit; this is in some ways better than you owning them, as it makes them generally immune to seizure/garnishment by creditors other than the IRS, and only by the IRS to the extent you could take a no-penalty distribution.
That's a pretty basic error in a rant about how everyone else doesn't understand the basics...
My counterpoint is that my wife would kill me if I cashed out my 401k.
* Yes, 401k plans usually have high fees, however the tax advantage they provide should more than offset those fees except for the very worst plans. And there are exceptions too: some 401k plans offered by very large companies actually have lower fees than popular low-fee IRA providers.
* When you say "get your money out of your 401k" are you referring to moving it to a low-cost IRA or cashing it out? The former is good advice if you have a 401k from an old job (that is not one of the aforementioned "very good" 401k plans). I don't think there are any reputable financial advisors that would suggest straight-up cashing out a 401k before retirement due to the taxes and penalties. The only circumstance I can think of where that would make sense is if it was necessary to avoid homelessness or pay for necessary medical care and you had already run through your non-retirement savings.
* You absolutely do "own" your money in your 401k as much as you own shares in a brokerage account or deposits in your bank account. If we're at the point where the government would confiscate funds in 401k accounts instead of just issuing new debt then the economy has probably already collapsed to a point beyond recognition.
* Your point about "clueless investment" is a critique of mutual funds and index funds not 401k plans. Someone holding an S&P 500 index fund in their IRA or brokerage account is no smarter than someone holding that fund in their 401k. Additionally, history has shown time and again that the only thing you can say with certainty about the stock market is that its aggregate value increases on average over time. The average person attempting to pick stocks, even at the sector level, is a recipie for them to miss out on the gains they need to have sufficient funds for their retirement.
* Your point about estate and income tax: and having the money in any other form would do what? You need to pay income tax on funds drawn from a (traditional) 401k plan because you deferred the tax when you deposited the funds. Whether you or your heirs are drawing the funds is immaterial in that aspect. If you have funds in a Roth 401k or Roth IRA or a regular brokerage you have already paid the taxes and as such you will not be taxed on withdrawls (except capital gains from brokerage accounts).
Similarly for the estate tax, if you had the money in cash at time of death you would still owe the same amount. On top of that, you'll be dead! What do you care what happens to the money after you're gone? Not to mention you need literal millions of dollars of assets upon death to get hit with the estate tax in the US so this will only apply to the literal 1%.
I haven't seen these "high fees" in any of the five 401k plans across 4 providers that I have had since I started my career 17 years ago.
Well, perhaps pedantic, but the exemption effects 100% of estates. Less than 1% face any tax after the exemption.
Less pedantically, the exemption is actually $11.4 million for 2019:
https://www.forbes.com/sites/ashleaebeling/2018/11/15/irs-an...
Nobody really knows how money works.
The average 401k holder has one because they don't have a good idea of how money works or what they should do with it. If they really understood their 401k, they'd know that they're probably getting ripped off in fees over their lifetime.
If economists and financial analysts completely understood money, they wouldn't be in such disagreement all the time over basic things. A financial advisor might tell you to leave your money in a 401k, and the next one might tell you the same, but it's not that hard to find one who will tell you to get your money out of your 401k ASAP for a variety of reasons.
At the end of the day, you have to trust your own judgment. People don't get rich doing the easy thing.
By the way, here's some things you should think about with 401ks:
- Someone with an average salary pays $138,336 in 401k management fees over their lifetime. Not only are you the only party taking a risk, but you're getting charged for taking that risk. Advisors and broker dealers aren't risking anything except your money.
- You don't own the money in your 401k. Read the fine print and you will find "FBO" (For Benefit Of). The tax code makes it technically owned by the government, but provided for your benefit. In a crisis, the government can confiscate any amount of your 401k to pay off debt and pensions.
- 401k teaches people to cluelessly invest. Do you know if your money is being invested in big tobacco or big oil?
- The government has the advantage with your money. Because you can't cash out without penalties, when you die, whatever's left over for your children is not only subject to income tax but to estate tax as well. They want your 401k money to be gifted to someone else because that means they don't get to cash in on your pile of money.