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why you use 10% for capital gains? isn't it now 15% (and was 20% recently)?

D'oh! You're right. If your marginal rate is 15% or lower, you only pay 5% tax on capital gains. If your marginal rate is 25% or higher, you pay 15% tax. So assuming our example occurs within a higher tax bracket, that $6,600 is closer to $9,900.

2) Traditional IRA distributions get taxed at your marginal tax rate

well, while this is true, some people usually note (and I agree with them), that, depending on how much income you have that year from different sources, your effective tax rate can [be] much smaller.

Very true. If the IRA distributions were your primary source of income, the taxpayer's effective tax rate would be somewhat lower, which would dampen the effect of the higher tax rate. I would expect that, all things being equal, the capital gains would still come out ahead; if the taxpayer had little or no other income, then the capital gains would be taxed at a mere 5%, and that's hard to beat. But the IRS rules aren't clear enough to allow for a quick-n-easy simulation here.

I personally have nothing against IRA's and 401(k)'s, traditional or otherwise; saving regularly is probably the best chance a working Joe or Jane has of retiring comfortably, and these vehicles help that to happen. But asset allocation can save you a lot of money when tax time comes around.

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