Assumptions 3 - DisabledChildPlanning.com

Figure 2.1: Retirement Plans and Tax-Deferred Savings vs. After-Tax Accumulations

Investment rate of return is 6% including 30% ordinary income and 70% capital appreciation with a 15% portfolio turnover rate.
Mr. Pay Taxes Later contributes $8,000 per year to his pre-tax retirement savings plan. Mr. Pay Taxes Now invests $6,080 per year (24% less due to income taxes). Both amounts are indexed for 3% annual raises, starting at age 30 until age 70.
Starting at age 72, spending from both investors accounts is equal to the RMDs from Mr. Pay Taxes Later’s retirement plan, less related income taxes.
Mr. Pay Taxes Later withdraws only the RMD, pays the 24% income tax due on his distribution, and spends the rest. Mr. Pay Taxes Now spends the same amount plus he pays income taxes due on his interest, dividends, and realized capital gains.
This figure does not take into account the additional monies earned if Mr. Pay Taxes Later invested the 24% tax savings into an investment account.
Ordinary income tax rates are 24%.
Capital gains tax rates are 15%.
Dividends are taxed as qualified dividends at the capital gains tax rate.
AGI is assumed to be less than $340,000 and there is no state income tax.

Figure 2.2: Retirement Assets Plus an Employer Match vs. After Tax Accumulations

Investment rate of return is 6% including 30% ordinary income and 70% capital appreciation with 15% portfolio turnover rate.
Retirement savings of $8,000 per year.
After-tax savings of $7,000 per year.
Both amounts are indexed for 3% annual raises, starting at age 30 until age 70.
RMDs from retirement accounts start at age 72.
After-tax funds fully depleted at age 84 when retirement accounts still have $5,446,284 remaining-
After tax accumulation withdrawals reduced by tax = 74% of
retirement distributions.
Ordinary income tax rates are 24%
Capital gains tax rates are 15%.
Employer match is 100%.