No. of Recommendations: 0
Acme,

Excellent example of how, even if one does assume investing in a low ongoing tax generating option, it is very hard for the taxable account to catch up to the tax deductible account. Of course, if you assume higher annualized returns, the catch up point is faster. On the other hand, if the taxable account does generate any ongoing taxes (say 1% annual dividends for a total market index fund, which is very far on the low end), that's going to extend the catch up point even further. So the scenario really works best for individual, non-dividend yielding, stocks that you hold until you need to cash them in, which means finding companies that you are virtually certain will continue to be good investments, and pay no dividends, for 30 years. Good luck.

My point is that there are not "many" scenarios where choosing a taxable account over a 401K is preferable, only one. You have to choose stocks or stock funds that generate minimal ongoing taxes and you have to hold onto those stocks or funds until very near the time you need the money.

I frankly don't think there are many circumstances where RMDs are a disincentive, unless you are going to continue generating enough income to live on past age 70 (and don't be surprised if the start date gets extended, along with the start date for when you can collect social security). If our RMDs, plus social security, are more than enough than we need come age 70, I will be so thankful to our politicians for not having screwed things up, I'll be more than happy to pay the taxes.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement