4.23.2022

Quotations from Chairman Varones

 Inflation is progressive utopians encountering resource constraints for the first time.

4.08.2022

Taxable brokerage vs. traditional 401(k) account

The common wisdom says pre-tax 401(k)s and IRAs beat taxable accounts hands-down. But it's not so clear to me. If you put buy-and-hold stocks or index funds in a taxable brokerage account, it's actually remarkably tax-efficient because of the ability to defer capital gains, and the preferable tax rates on dividends and capital gains.

Here's a spreadsheet where you can play with the assumptions (you'll have to make a copy for  yourself to edit): link

Yes, traditional beats taxable in simplified base case, but this ignores:

  • tax loss harvesting 
  • HIFO withdrawals 
  • foreign tax credits
  • higher potential future tax rates
With the federal government running perpetual deficits of 3% - 5% of GDP, is it really out of the question that tax rates on wealthy retirees could hit 37%? That's about the point where taxable beats pre-tax even before considering HIFO and tax loss harvesting.

Happy Super Tuesday!