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This math doesn't seem right. Deferring taxes gives you significantly more money to invest early and take advantage of compounding. Additionally, the model is t
by otterley 5y ago
This math doesn't seem right. Deferring taxes gives you significantly more money to invest early and take advantage of compounding. Additionally, the model is that you pay off your home mortgage before retirement, which means you need to withdraw a lot less during retirement years, which lowers your overall tax rate as well.
- davidgay 5y ago> This math doesn't seem right. Deferring taxes gives you significantly more money to invest early and take advantage of compounding. No, the grandparent is correct. The tax rates and compounding are both multiplicative, so associativity leads to the consultation that only the tax rate at saving-time and retirement-time matters
- swimfar 5y agoIt does sound suspicious, but it works out. Let's say you have $100k to invest, have a 30% tax rate, and your investment will give you a 2x return by the time you're ready to withdraw. Pre-tax investment: Invest $100k and it becomes $200k. You pay $60k in taxes and end up with $140k. Post-tax investment: You pay $30k in taxes and invest $70k. That $70k becomes $140k.
- deleted 5y ago[deleted]
- ac29 5y agoThat falls apart if you are maxing the contribution though. A maximum contribution to a Roth IRA is going to be more valuable than a maximum contribution to a Traditional IRA. Yes, technically with the latter you will have more money left to invest in a separate taxable account, but not being able to defer taxes will drag on the investment return.