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Subject: Re: Roth IRA Contriubtions & Conversions  Date: 2/3/1998 2:21 PM  
Author: TMFPixy  Number: 1608 of 82858  
Kilmarnoch, <<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"... >> No, that won't work in this case because the 20% doesn't get assessed until you sell. The question then becomes, when does that happen? In my scenario, it was at the point where withdrawals would begin. Your formula would make it annually. Can't do that and get capital gains rates, but I suppose you could say every 18months. Or maybe every two years, or three, etc. That gives rise to did you sell all or part? The questions go on and on. I took the easy way and said it was a buy and hold until the end of 5 years, 10 years, etc. At the end of that period, I would assess the capital appreciation the 20% tax. Your formula, by applying the tax annually, loses the compounding effect of the yettobetaxed dollars. Example: I buy a share of stock today for $100, and it appreciates at 10% (all capital gain) per year for 20 years. At the end of that time the share is worth $$672.75, and after the onetime 20% capital gains tax I would net $$538.20. Under your formula the compounding to the net would be at 10% * 0.8 = 8% to end up at $466.10. You short change the growth that way. Regardsâ€¦..Pixy 

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