Is 401k as good as it sounds given the way it is taxed?
You raise a good point about the higher marginal rates for 401K but things will be different, in retirement, than they are for you now.  First off you are going to have a "boat load" of money.  Like probably a multi-millionaire.  Also your ability to invest will (probably) increase greater than the maximum allowable to invest.  For this money you might choose to invest in real estate, debt payoff, or non-qualified mutual funds.   So fast forward to retirement time.  You have a few million in your 401K, you own your house and car(s) outright and maybe a couple of rental properties.  For one your expenses are much lower.  You don't have to invest, pay social security taxes, or service debt.  Clothing, gas, dry cleaning are all lower as well.   You will draw some income off of non-qualified plans.  This might include rental real estate, business income, or equity investments.  You can also draw social security income.  For most of us social security will provide sustenance living.  Enough for food, medical, transportation, etc.  Add in some non-qualified income and the fact that you are debt free, or nearly so, and you might not need to draw on your 401K.   Plus if you do need to withdraw you can cherry pick when and what amount you withdraw.  Compare that to now, your employer pays you your salary.  Most of us do not have the ability to defer our compensation.  With a 401K you can! For example lets say you want a new car where you need to withdraw from your 401K to pay for it.   In retirement you can withdraw the full amount and pay cash.  Part of this money will be taxed at the lowest rate, part at higher rates.  (Car price dependent.) In retirement you can take a low interest or free loan and only withdraw enough to make the payments this year.  Presumably this will be at the lowest rate. Now you only have one choice:  Using your top marginal rate to pay for the car.  It doesn't matter if you have a loan or not.