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I stash away 20% of my pay into my 401K. They selection of mutual funds is unacceptable and I don't want to dump all of the money into the S&P500. I think I can get better returns if I pick stocks. If I put $400 every two weeks into the 401K that would be approximately the equivalent of investing $288 in the market after taxes. If my mutals average 12% per year and my investements average 20% per year, eventually my investements will overcome the income tax I paid. Now, when I go to sell from the 401K I will pay whatever income tax bracket I am in. When I sell from my investements, since I will have held them for some decades or so, I will pay 18% capital gains tax. Do I also have to pay income tax on it as well? If I just have pay the capital gains tax, my calculations tell me I am better off investing the money I would have put in my 401K. Of course I will still put the company matching amount in the 401K and my assumptions are based on the fact that the IRS won't change the rules for the next 40 years *heh*. Any thoughts?
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