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Hello Tax Stategies people,

I have recently started a new job complete with a new retirement investing option that I wanted to bounce off people to see if I'm thinking about it correctly. Beyond a mandatory retirement plan, I have the option to create two other accounts: a 403(b) and a 457(b) (no employer match for these). Both of these appear to function like a traditional IRA. I have enough squirreled away elsewhere that I won't have to depend on this new money, and I have a >20 year horizon 'til I will have to withdraw it. If I create these accounts, I'll likely invest the money in whatever low cost index fund is available (looks like Fidelity Spartan).

So my biggest tax question is, assuming I hold it over a year, am I converting what would be LTCG in a taxable account into regular income from the IRA? If so, does it make sense for me to fund these at all if I plan to invest in an index fund? My pros and cons:

Pro funding the IRA-type accounts:
Defer paying taxes on earnings for 20+ years

Less flexibility in choice of investments
Unable to access the money for 20+ years (should not be a big issue)
Converting LTCG to regular income may actually increase the tax due (?)
Index fund has lesser benefit from being in a tax-advantaged account

There may be changes in the LTCG tax rate
There may be changes in the way 403b/457b 's work

I don't really feel driven to put much in fixed income investments at present, but I could do that within this kind of tax-deferred framework, and then it would seem the benefits of deferring the taxes would be more dramatic. At any rate, I'd appreciate any comments on my situation.


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