Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next
Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121169  
Subject: Re: Tax deferred vs taxable acct? Date: 9/12/2007 7:21 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
One other thing to think about is your tax rates now vs. your tax rates in the future.

Yes, long-term capital gain rates today are lower than ordinary income rates today. But you really need to consider two components to this.

First, for the amounts contributed to the plans, the proper comparison is ordinary income rates today (the amounts contributed to the 403b and/or 457 plans are not taxed right now) compared to the ordinary income rates when you eventually withdraw the money.

Next, you compare the tax rates on the income generated by the money between now and when it's retirement time (which will be a mix of ordinary and capital gain rates, depending on how the money is invested) to ordinary rates in retirement.

Basically, there is the potential for some arbitrage in tax rates from your current rate to your retirement rate. Unfortunately, that calls for a really good crystal ball to determine the future tax rates. Or, more realistically, you project the future rates based on current tax laws and the known changes, including inflation indexing.

--Peter <== thinking the crystal ball may be the easier approach
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (3) | Ignore Thread Prev | Next

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
Post of the Day:
Value Hounds

Ubiquiti Analysis
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 "#1 Media Company to Work For" (BusinessInsider 2011)! 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