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URL:  http://boards.fool.com/argh-if-i-could-only-edit-my-last-post-10096447.aspx

Subject:  Re: Roth IRA Contriubtions & Conversions Date:  2/2/1998  7:59 PM
Author:  Kilmarnoch Number:  1600 of 76418

ARGH! If I could only edit my last post.

<<return = (yield * 70%) ... taxed at capital gains rate + (yield * 30%) ... taxed at marginal rate.

so something like:
6.984 = (9 * .7 * .8) + (9 * .3 * .72)

after all if you are earning 9% and you get taxed at 20% on the whole investment you keep 80% of the "growth"... 9 * .8 == 7.2. How can someone who is being taxed at 20% and 28% expect a higher 8.244%
return?>>

change *investment* to *yearly gain*

... if you are earning 9% and you get taxed at 20% on the yearly gain you keep 80% of the "growth"...

I suppose I should put that example to numbers:

investment: $1000
pre-tax rate: 9%

gain: $90
30% of gain is from dividends: $27
70% of gain is from capital growth: $63

tax on dividends (at 28%): $7.56
tax on capital growth (at 20%): $12.6

total tax: $20.16
total growth: $69.84

percent government takes: 22.4%
percent you keep: 77.6%

you keep 77.6% of the 9% gain: 6.984%

Nap time now!
--Kilmarnoch
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