<p>We examine optimal portfolio and consumption choice with defined contribution plan (DCP) participation and taxation of labour and capital income. We rigorously establish the connection between the value function and the associated Hamilton–Jacobi–Bellman equation. We uncover the impact of tax sheltering, employer matching and potential diversification effects related to the DCP on the optimal choice. We calculate the value of participation and decompose it into four components corresponding to different types of utility gains from participation. We find that suboptimal asset location significantly reduces the participation value, while suboptimal capital gains tax-timing does not.</p>