oprah.chopra@[EMAIL PROTECTED]
writes:
> I am reading that tax deffered account like 401K aren't so great
> because you end up paying ordinary income tax rates on the
> withdrawls. Is it better then to invest your money directly in stocks
> and just pay the long term capital gains tax rate, 15%?
If you can buy _perfectly_ tax-efficient stocks (ie. which
throw off no dividends and only hold cap-gains) and you
never re-balance, and you don't require a ****tfolio which
holds other assets (ie. bonds), you *could* be right -
that instead of a 401k, you may come out ahead with stocks
in your taxable account.
But that's a lot of ifs. And doesn't take into account
any possibility of long-term cap-gains rates (or, similarly,
income rates) changing.
The fact is, though, that most diversified stock-holding
****tfolios *do* throw off currently taxable income - cap
gains from rebalancing, taxable dividends, and when
the ****tfolio is balanced with some fixed-income (which
is a good idea for most ****tfolios, even if only as little
as 10 or 20%) - a tax-deferred account (or tax-free
account like a Roth, especially) comes out well ahead.
In addition, having the assets in a 401k or IRA adds
additional layers of protection against creditors, and may
not be considered as assets you have when they compute
college financial aid calculations.
In the end, there are arguments for *both* classes of
accounts - taxable *and* tax-favored (whether deferred
or Roth-ish).
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