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re: How much of an emergency fund do I really need?
Posted on 3/4/15 at 8:14 pm to Volvagia
Posted on 3/4/15 at 8:14 pm to Volvagia
quote:
As I understand it, the difference is in taxable events that occur after the initial contribution, not the initial one.
You'll see the difference 10-20 years down the road more than you will in the short term.
It doesn't get an initial head start because it is taxed on the back end.
10000 Gross taxed account at 25%
10000 taxed to 7500, grows annually for 10 years at 8% to 16,191
10000 tax deferred grows to 21,589, taxed at 25% to 16,191
There are big benefits to a 401k, but the idea that taxable investments have to play catchup to the pretax investments isn't one.
You just described the difference between a before tax (401k) and after tax (roth IRA). Investments made in a regular brokerage account with after tax dollars are taxed AGAIN via capital gains.
Posted on 3/4/15 at 11:23 pm to dragginass
*facepalm*
Did no one read the actual posts involved?
Yes, the math is very similar to Roth vs traditional comparisons, but that is only because both a Roth and a taxable account are funded with after tax dollars.
For a third time, I was only trying to disprove the notion that a taxable account needs to play catch up on day one because of taxes. The day one value of the two funds are the same, even though they have different amounts of money. The difference emerges with taxable events over the years. I never claimed that a 401k tax shield didn't have a benefit.
Did no one read the actual posts involved?
Yes, the math is very similar to Roth vs traditional comparisons, but that is only because both a Roth and a taxable account are funded with after tax dollars.
For a third time, I was only trying to disprove the notion that a taxable account needs to play catch up on day one because of taxes. The day one value of the two funds are the same, even though they have different amounts of money. The difference emerges with taxable events over the years. I never claimed that a 401k tax shield didn't have a benefit.
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