<<Since mycompany 401K is not matching and would grow at anindex fund rate of about 10.7%, and RayVts' approachwould gain me a 17.4% return I could retire sixyears earlier.But I began to think: let us assume that 1/2 of thestocks in the DDA approach turn over each year, andyou must pay a 20% capital gains tax on the gains. Thenputting money in the 401K gives FAR superior returns.Step 4 would seem to be a horrible suggestion. If I'vedone my formulas correctly (see below) Excel showsthe difference to be between $100K and $700K of 1998dollars. Does anyone else have the same findings? Or do youthink my calculations are flawed?>>I can't see this as being right. Paying LTCG tax as you go reduces the effective return to 13.92% (17.4% * (1-.20)) (BTW, the correct figure to use for SIG4 is 16.5%, not 17.4%. Even so, this is effective 13.2%.)With taxes figured correctly (28% on dividends, 20% on LTCG), the total effective after-tax rate is 12.9%.Any way you cut it, this outperforms the S&P500 return of 10.7%. Even more so, when you consider that withdrawals from the 401(k) will be taxed as ordinary income at 28%.Regards,Ray
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