Does the benefit of a tax-deferred investment account (like a regular IRA or 401(k) plan) come entirely from the possibility that I may be in a lower tax bracket in retirement?
I think I understand the mechanics of these accounts: If I take my money and save it in a normal taxable account, I pay tax now at my current tax rate, then I pay tax on the income at my normal tax rate, and I pay tax on the capital gains at the capital gains tax rate, which is normally lower than my tax rate.
If I put my money in a tax-deferred account, I pay no taxes on the contributed amount or the income till I retire; then I pay tax on the full amount withdrawn at my post-retirement tax rate. (And I lose the benefit of the lower capital gains rate.)
If someone's pre- and post-retirement tax rates are the same, is there any benefit to a tax-deferred account?
(The 28% Fed. tax bracket extends from $77K to $160K, so it's not hard for someone to be in the same bracket pre- and post-retirement.)
2007-10-20
18:56:42
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5 answers
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asked by
Erik
2
in
United States