From my understanding, this is not correct. 401K contributions reduce your marginal tax rate. So if you make 100k and contribute 15k, you save about 24% in taxes. Then when you withdraw 100k a year during retirement, you pay only 18% in taxes.

On top of that, since you are only feeling a 11k reduction in your paycheck per year, but investing 15k, you end up with that much higher growth overall starting with a higher base.

The only time expected retirement withdraw rate (treated as income at that time) matters is when choosing between Roth and traditional 401k / IRAs. In that case, with Roth you are contributing a lower amount initially (11k reduction in pay = 11k invested, instead of 15k invested), however the interest grows tax free. So if you are investing enough that the interest gives you a huge amount of money during retirement such that your annual retirement income (using 4% rule) gives you much higher pay, you would be better with Roth. But in no case are you better without any tax advantaged account.

Whether it's pre-tax or post-tax, it's an ERISA account, which means it's mostly judgment proof. You could invest in a standard brokerage account with post-tax money and you wouldn't get the ERISA protection. Also, retirement accounts allow you to specify to specify a beneficiary, which usurps the (long) probate process or any wills (making for a quick asset transfer). Death and judgments are certainly corner cases, but nonetheless add some intangible benefits.

with a traditional IRA/401k you save today at the marginal rate (both state/federal) vs a Roth where you pay taxes at the marginal rate on them. In retirement, a traditional IRA/401k you only pay taxes at the amortized rate (for all your income) through all the brackets at the Federal level (and have more of an option to live in a tax free state than you did as a worker, to save even more).

i.e. I'd argue that most people will be paying lower taxes in retirement (even without moving to a low/no tax state) even if their post retirement income is greater than their pre retirement income and tax brackets haven't changed.

But a $100k Roth contribution would have been a larger pre-tax contribution (maybe $130k or so). That would have compounded to be larger than $300k all things being equal. If you do the math on it as long as your tax rate is the same in retirement there's no difference between traditional vs Roth.

> This math doesn't seem right. Deferring taxes gives you significantly more money to invest early and take advantage of compounding.

No, the grandparent is correct. The tax rates and compounding are both multiplicative, so associativity leads to the consultation that only the tax rate at saving-time and retirement-time matters

It does sound suspicious, but it works out. Let's say you have $100k to invest, have a 30% tax rate, and your investment will give you a 2x return by the time you're ready to withdraw.

Pre-tax investment: Invest $100k and it becomes $200k. You pay $60k in taxes and end up with $140k. Post-tax investment: You pay $30k in taxes and invest $70k. That $70k becomes $140k.