No. of Recommendations: 0

Thanks for your reccomendation Pixy...I went and read the Retirement Guide. The equation makes sense, figuring out how much return you'd have to make in a taxed vehicle versus a non-taxed vehicle.

However, when reading the Retirement Guide, I saw no mention of the tax deduction benefits of the 401(k). Do you consider the tax break to be largely negligible in favor of securing higher long-term returns in an IRA with individual stocks?

I am going to run these numbers in a big messy spreadsheet anyway at some point, but I just wondered what importance you place upon the present-day tax breaks afforded by the 401(k) or other tax-deductible plans.

Of course they're important. However, if the objective is to make money, then they cannot be the sole criterion in one's decision. The formula is intended to provide you that indifference point where investing in a tax-deferred versus in a taxable account results in the same net amount through the years. Too often we focus on avoiding taxes instead of netting more in our pocket. Thus, I avoid making a big deal over the tax break. It doesn't always make sense to take it That's especially true if like most Fools you are striving to be in the same or higher tax bracket in retirement than you are in now. If you expect to drop down a notch or two, then perhaps the tax deferred vehicle always makes more sense. If you do, though, you will be the rare one who doesn't care about improving your lot in life. :-)


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