On Life and Love

Bogleheads’ Retirement Planning: Tax Games

Why didn’t I ever look at 401(k) contributions as a tax game?

Probably because I didn’t really understand how taxes worked.

The Bogleheads’ Guide to Retirement Planning dedicates a whole chapter to explaining taxes, including how tax brackets work, how they differ between singles and married couples, and some of how retirement withdrawal can be targeted to minimize tax payments.

I feel like I should put a caveat in here: I don’t mind paying taxes, and I appreciate our progressive system that taxes the wealthy more. I like and want the social services and science research our tax money funds.

…Less so on the weapons, though.

With that, I have a bit of an ethical quandary: am I okay gaming the system in order to pay fewer taxes?

For instance, suppose maxing out my 401(k) (and coming up with a similar pre-tax solution for Greg) takes us below whatever our post-marriage marginal tax bracket would otherwise be. Yay, fewer taxes! (Hell: yay, saving!)

Boo, gaming the system?

Then again, there’s surely nothing wrong with maxing out one’s 401(k) accounts, and the tax benefits are merely a side effect. Right?


Unfortunately, my current non-Roth 401(k) has little advantage over the Roth equivalent other than reducing my taxes in the short run. Maybe I should sic Greg on this, since he likes optimization games.

From what I understand, a similar tactic can be applied to Investment Policy Statement, since it addresses the funding of retirement accounts.

Or, if you’re self-employed, during quarterly tax-chat time.

(This is the third in my series of Bogleheads’ Retirement Planning-inspired posts.)


  • Gregory Weir

    The way I look at it, the reason you can game the system is because the framers of the tax code want you to invest in retirement. Assuming the system as designed reflects their intentions (not a small “if,” but still), then you optimizing your tax game means you’re doing what they want you to. There’s a difference between exploiting loopholes or doing every part of your business in the state that gives you the most advantage, and just using all of the benefits granted to you as an incentive to behave as the government prefers you do.

    Don’t think of these as gaming the system, but as working with the tax system to get behavior-based discounts.