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BTW: The lower figure of around 1.5 percentage points is the number Vanguards study came up with for such index funds that are supposed to be so tax efficient.

Yes, but the 12% growth figure I used is pre-tax growth. My little spreadsheet applies taxes afterwards. The true internal rate of return is considerably less than 12%.

Yes, I say where you used the 20% capital gains rate . . .which was only on the distribution side of the taxable table. You used 28% as a taxable rate for a net deposit of $7,200. Whether you use the 28% Marginal Tax Rate or the Capital Gains Rate, it would be inaccurate when you should be using an Average Tax Rate to come up with net deposits and withdrawals in your table for you're particular analysis. . . . wouldn't it?

Ahh, now I understand the question. Sorry, my language was imprecise. Yes, in the taxable case I did use the marginal tax rate for savings during the accumulation phase. That's probably appropriate for someone on the borderline between the 28% and the next higher bracket. If your particular case is different use whatever fits.

And of course the same is true during the distribution phase of the tax deferred strategy.

If you really want fully accurate answers to these questions, you have to estimate the full tax return for each year involved. However, if you set up a little spread sheet like the one above, you can get a much better feel for the critcal numbers than you can get by just waving your hands. Once you get a feel for how the various assumptions affect the choice, you make a much more informed choice.

Cheers,
GW
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