No. of Recommendations: 1
hiya i was hoping you could help me settle a debate. a friend of mine has suggested that with new divedend and capital gains rates, it may *not* be worth it to invest in a pension plan.

his rational/assumptions were that investment gains will be taxed as ordinary income when withdrawn from a pension plan, and he will be in a high income bracket at retirement, while a non pension investment gains could potentially be taxed at only 15% or so.

can anyone help me out with this?

i ran a quick test assuming a lump sum invested in 3 scenarios:
A) pension (no matching)
B) taxable long term cap gains/dividend churning anually
c) taxable LTB&H

assumed 10 year investment, 10% annual gain, high California fed and state income tax (44%), 15% capital gains for taxable investments.

came up with the following:
A) pension (1+.1)^10*56% = 1.45
B) LT churn (1*56%)*(1+.1*.85)^10 = 1.27
C) LTB&H (1*56%)*(1+[(1+.1)^10-1]*.85) = 1.32

this is simplistic in that it assumes a lump sum rather than yearly investements.

anyway i don't expect folks to try to decode/correct my math
but i'm sure someone has run a similar analysis
(i haven't found the post)
or there's a calculator for it

any help with the argument, assumptions or number crunching would be appreciated.


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