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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.
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Assuming that, as you state later on, you'll contribute at least to the point of full employer match, you're right that the next $400/mo would do better in a taxable account assuming:

1) You actually realize a higher return from your stock picks than from your mutual funds
2) You hold for the *long* term. Merely holding for a year to get the 20% long-term capital gains rate is insufficient here, since losing 20% of your profit each year will but the taxable account well behind the tax deferred one.
3) Your stocks have no dividend payments to retard their growth (since dividends will be taxed as ordinary income)

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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?
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The LTCG rate is 20%, not 18%. No "regular" income tax is due on long-term capital gains.

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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
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You're right here. In my opinion, though, it's more likely that the Congress will continue to honor the rules regarding special retirement accounts than normal taxable accounts in the future because-

1) Lots of "normal" Americans have invested in 401(k)'s, IRA's, etc. based on the current rules. This makes it unpopular to change them.
2) Relatively fewer people, unfortunately, have taxable accounts. Since these people also tend to be wealthier, they're easier targets when it comes time to find revenue sources.
3) Rules on taxable accounts have changed often and will continue to change, so there's much less safety implied. I can remove this money any time the rules change, so I have some opportunity to "consent" to whatever changes Congress makes. I can't touch my IRA's for many more years, though, so I have no opportunity to consent.
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