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Hello All,

I have seen several post about using a Buy and Hold trategy for tax-deferal benefits. This works only when you are comparing after-tax dollars to after-tax dollars.

It does not work when you are comparing pre-tax dollars (i.e. 401k) to after-tax dollars (i.e. non-retirement account.

I stated on another thread that you are taxed twice in a non-retirement account 1st when you earn it, then on the capital gain. In a retirement account you are taxed only once, when you take it out.

I have had several people disagree with me on this point, so I will show you the numbers.

Assumptions 28% income tax & 20% LTCG. 10% rate of return for 7.2 years (money doubles).

You earn $2000 and have the choice of:

401K vs. Non-Retirement
(Before Tax) 28% (After-tax)

$2000 amount invested $1440

$4000 $$ grows to @ 10% over 7.2 yrs $2880

$4000 Amount taxable $1440

($1120) less taxes ($ 288)

$2880 Net amount after Taxes $2592

As you can see the 401K Net After Taxes is more!!! I have ran this same comparison at several valuations and RORs. The result is always the same YOU are better in invest in a qualified retirement account if you don't need the money until retirement!!!

Thank you,

Micahel A
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