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Thanks for the detailed reply Acme.

You are most welcome.

1) I don't have the list in front of me now, but there is no Vanguard with low fees. They all charge 1.3+% fees. I choose two, one of them is NBSRX.

I just looked on Morningstar and the expense ratio is 0.89% for NBSRX. Are there other fees in your account that would not be included in Morningstar's report?

2) About 45% tax - I am in California and these are the numbers for me. I went to paycheck calculator and adjusted the deduction until my net gain lowered by the same amount. And I have no discipline issues when it comes to investments.

This means that your marginal tax rate is 33%. I was mistakenly thinking in terms of effective tax rates before, but the marginal rate is what applies here.

One note...when you are in this tax bracket, you are generally not eligible for Roth IRA contributions. Are you using the 2-step work-around to make your Roth contributions?

3) Math in my own investment - You are right the math is not perfect. I had to start somewhere. I will look into factoring dividend gains and taxing and taxation on reallocation.

If I add 0.15 tax on gains every year the number I get is:

Now I think you have gone too far with taxes! :) You are not likely to sell/buy every year. So there's no need to look at a 15% tax each year. You just have to take 15% of the GAIN (end amount minus contributions) away at the end. Even this is overly simplified, but it gets you close enough.

Of course, things we don't know -- such as future tax rates and future returns -- can push things far enough away from our initial assumptions that our results are just plain wrong. This is why I suggested the possibility of the split approach.

4) Tax percent on retirement - I went to paycheckcity and entered 27996 yearly income and that's the number I got. And for the sake of simplicity I am making the calculations in today numbers for both my investment and the 401k.

Did you exempt yourself from FICA and Medicare? (It looks like you had them withheld when I run the numbers.) You won't pay those taxes on 401(k) distributions.

Also, I know little to nothing about California tax law, but do you pay SDI on 401(k) distributions? It seems unlikely to me, but anything is possible in California!

Personally, I love the process of having 3 piles of money for retirement.

1. Roth IRA/401(k) -- tax free money
2. Traditional IRA/401(k) -- pre-tax money
3. Taxable Accounts -- partially tax-free; partially pre-tax

Each of these 3 items has different treatment under the tax code. There are times when each is favored.

Best of luck!

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