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So how to calculate the best strategy? The variables are:
- current marginal tax rate
- rates of return in taxable vs non-taxable accounts
- number of years to withdrawl
- marginal tax rate when the funds are withdrawn in the future


Your variables are incorrect, or at least incomplete. It is unfortunate, but most financial information has led people to believe that they need to compare today's marginal rate with their future marginal rate. This is an eggregious error.

When you take the tax break today, you receive that break at your marginal rate (with some of the money possibly even being higher than your 1040 marginal rate since you could have been in a higher tax bracket without the tax-deferred contribution). However, when you later pay taxes, it is highly unlikely that your other forms of income will already put you in your marginal tax bracket...therefore much of the money you are withdrawing will be taxed at lower rates.

For this reason, even if the marginal rates are higher in retirement, it is very possible for the tax-deferred investing to come out ahead.

A more appropriate set of variables would be:
-- current tax schedule
-- estimated returns
-- estimated inflation
-- number of years to retirement/needing the funds
-- amount of funds needed each year
-- expected future tax schedule (I would build this using the current schedule and inflation for the number of years you want to investigate. ..this will give you the bracket points and you can set the rates to whatever you like.)

Even this list is only a start to a complete analysis.



but does anyone know of a program or spreadsheet that would allow me to pay with the variables and see under what circumstances it is better to save pre-tax or post-tax dollars?

I think your best bet is to build something yourself for your specific situation...the process of building the tool will help you think through all the things you want to consider more thoroughly.

That said, when I read this line, I need to ask -- by post-tax are you referring to a Roth-type account or just a standard investment account? If the former, then this is a good exercise; if the latter, you are unlikely to be in a situation where you are better off avoiding tax-deferred investing in favor of fully-taxable investing.

Acme
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