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<< One other thing that I believe that you forgot, daeschli, is one of the first rules of Fooldom which is that you can make your own investments cheaper then Mutual funds. Or stated another way, you will loose more money to the expense ratio of mutual funds and the poorer return on investment that companies let you choose from for your 401K then you will have if you had invested in QQQ, SPY, and/or DIA.

So, if the above statement is correct, then, the CAGR of 10% could be a good number for the tax-deferred account but in the taxable account, using a very conservative 1% additional return, you have an after tax Tax-deferred account vs Taxable account $125,636/$126,099. Not much different but MORE IS BETTER. I believe that in that 30-year period you will get a better return then 1% increase. Take control of you own investments >>

Sorry, you missed the point. I was not advocating sticking with mutual funds rather than stocks (see my aside on self-directed 401Ks). What I was pointing out was that *all other things being equal*, capital gains taxes are an additional cost of a taxable account when compared alongside a tax-deferred account. This is important, for example, for those who are considering investing in a taxable S&P500 index fund in a taxable account so they can get their hands on the money, as opposed to investing in the same fund in their IRA. In that case you need to compare the capital gains taxes against the early withdrawal penalty.

What you should have pointed out was that if you *do* wait until retirement before withdrawing the money, you need to compare the capital gains taxes (for your long-term buy and hold taxable account) with ordinary income taxes (for your tax deferred account withdrawals). If your investments have done well, paying the capital gains taxes may seem like a good deal considering the alternative.

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