That's what I do, not least because it's so much simpler than spreading everything across everything. One PP in Roth, one PP in traditional, one PP in taxable.

## Investment locations?

**Moderator:** Global Moderator

- mathjak107
- Executive Member
**Posts:**2351**Joined:**Fri Jun 19, 2015 2:54 am**Location:**bayside queens ny-
**Contact:**

### Re: Investment locations?

Rmds always require assets to be sold ...but all that means is you rebuy them again in the taxable account ... nothing changes. It is just switching pockets.ochotona wrote: ↑Wed Oct 16, 2019 4:04 amDividend payers are a case which isn't quite the Permanent Portfolio's S&P 500. My remarks don't treat high dividend stocks.

Yeah, RMDs... Another problem when the IRA gets too large, another reason not to put growth assets in the IRA.

RMDs will force you to sell gold even if you don't want to. I think of my gold as the last thing I want to let go of, I will only sell when I hit the PP rebalance band... 35%.

From year to year no one knows what does well. You can just have a PP in each type of account. That's not my choice because I have opinions about what will do well over decades, and that's the timescale my tax strategy works on.

Big gains in assets that are taxable can present all kinds of problems in retirement.. everything from getting ss taxed , to what you pay for Medicare to aca subsidies count on your ability to control your taxable cash flow .

Tax advantaged accounts are very valuable for that .... even as little as that 2% dividend from an s&p fund can wipe out any tax savings in a taxable account over time .... so pretty much anything with potential for big gains should be in the retirement accounts ..anything that spins off these low levels of interest should be in a taxable account

- vnatale
- Executive Member
**Posts:**986**Joined:**Fri Apr 12, 2019 8:56 pm**Location:**Montague, MA-
**Contact:**

### Re: Investment locations?

I am reading the book that was previously recommended. What you are doing is NOT recommended by the book:

"Researchers find that people typically fill their taxable and tax-deferred accounts arbitrarily with the same kinds of assets in each. Individuals do this out of ignorance; investment advisors do it for their convenience. Nevertheless, it is wrong. Bad dog!

Here are the guiding principles to give you an approximate fit. There is a fair consensus of professional opinion on this point. The answer in one sentence is that you want to put stocks in taxable accounts and bonds in tax-deferred accounts.

If your situation allows, consider all your assets as part of one big happy household portfolio. Then park each one in whichever account is most advantageous tax-wise for that particular type of asset."

Vinny

"Researchers find that people typically fill their taxable and tax-deferred accounts arbitrarily with the same kinds of assets in each. Individuals do this out of ignorance; investment advisors do it for their convenience. Nevertheless, it is wrong. Bad dog!

Here are the guiding principles to give you an approximate fit. There is a fair consensus of professional opinion on this point. The answer in one sentence is that you want to put stocks in taxable accounts and bonds in tax-deferred accounts.

If your situation allows, consider all your assets as part of one big happy household portfolio. Then park each one in whichever account is most advantageous tax-wise for that particular type of asset."

Vinny

"I only regret that I have but one lap to give to my cats."

### Re: Investment locations?

This topic is so fundamental to PP investing, I think we need to reach a definitive consensus. I need some numbers to understand the complexity, and I would love it if you all would correct me if I make a mistake below. Thanks.

Let's consider a PP investor, who invests in the four assets, but let's consider each asset alone for optimizing its tax consequences. Let's make her female so I don't have to write "he/she" repeatedly!

Over the working years (let's say 40 years), our investor invested a total of $100,000 in stocks ($2500 per year), and also reinvested all dividends, which yielded 2% each year. She was always in the 24% tax bracket during those working years. After 40 years, she now has $2,000,000, a handsome return. For more simplicity, I'm going to guess an average balance of $500,000 over the 40 years, so the average dividend each year was $10,000.

Our investor chooses to retire on $100,000 per year, and -- again, for simplicity -- doesn't take social security or get a pension, just lives off her investments.

Considering a single person, with 2019 tax brackets all the way from today to 40 years back (yeah, it's a stretch, but, again, for simplicity -- or consider this scenario a future prediction with rates staying the same for the next 40 years):

10% $0+

12% $9,700+

22% $39,475+

24% $84,200+ (<-- assuming our investor was always in this bracket during earning years)

32% $160,725+

35% $204,100+

37% $510,300+

Long-term capital gains and qualified dividends, taxed at following rates based on taxable income:

0% $0+

15% $39,375+ (<-- assuming our investor was always in this bracket during earning years)

20% $434,550+

Standard (and only) deduction: $12,200

There are three possible locations for these investments, and she chooses only one:

(1) Taxable account

(2) Taxable retirement account (Traditional IRA, SEP IRA, traditional 401k...)

(3) Tax-free retirement account (Roth IRA, Roth 401k...)

Let's start...

(1) Taxable account (no special tax advantages)

Our investor payed $24,000 in tax (24% of $100,000) on the earned money that went into stocks (no tax advantage, no retirement account). Let's say her bank balance is -$24,000, the initial stock basis is $100,000, and the government gained $24,000.

Each year, she earned an average of $10,000 in dividends, which were taxed at 0%. These dividends were reinvested, adding $400,000 to the tax basis over 40 years. So total stock tax basis is $500,000. That's 25% of the total current stock value at retirement of $2,000,000.

Now, in retirement, she wants to live off $100,000. At 2%, the dividends earned this year total $20,000. That means our investor has to sell $80,000 worth of stock. That amount has a tax basis of $20,000 (25%). So the capital gain of that $80,000 is $60,000.

The standard deduction is $12,200, making the taxable income $87,800. So the highest tax bracket for the dividends and capital gains is 15%. The $20,000 in dividends is less than $39,375, so it's all taxed at 0%. The $60,000 in capital gains is made up of $39,375 taxed at 0% and the rest ($20,625) taxed at 15%, or $3094.

So our investor would have to pay only $3094 in tax each year. But has a bank balance of -$24,000. That's a surprisingly low amount of tax, don't you think? The Roth IRA version of this story would be pretty similar, but end up paying zero tax in retirement, instead of $3000. It's not that different!

Have I made a mistake anywhere? Please let me know. I'll work on other examples in future and hopefully I can compile all the info into one big report for future reference.

Let's consider a PP investor, who invests in the four assets, but let's consider each asset alone for optimizing its tax consequences. Let's make her female so I don't have to write "he/she" repeatedly!

Over the working years (let's say 40 years), our investor invested a total of $100,000 in stocks ($2500 per year), and also reinvested all dividends, which yielded 2% each year. She was always in the 24% tax bracket during those working years. After 40 years, she now has $2,000,000, a handsome return. For more simplicity, I'm going to guess an average balance of $500,000 over the 40 years, so the average dividend each year was $10,000.

Our investor chooses to retire on $100,000 per year, and -- again, for simplicity -- doesn't take social security or get a pension, just lives off her investments.

Considering a single person, with 2019 tax brackets all the way from today to 40 years back (yeah, it's a stretch, but, again, for simplicity -- or consider this scenario a future prediction with rates staying the same for the next 40 years):

10% $0+

12% $9,700+

22% $39,475+

24% $84,200+ (<-- assuming our investor was always in this bracket during earning years)

32% $160,725+

35% $204,100+

37% $510,300+

Long-term capital gains and qualified dividends, taxed at following rates based on taxable income:

0% $0+

15% $39,375+ (<-- assuming our investor was always in this bracket during earning years)

20% $434,550+

Standard (and only) deduction: $12,200

There are three possible locations for these investments, and she chooses only one:

(1) Taxable account

(2) Taxable retirement account (Traditional IRA, SEP IRA, traditional 401k...)

(3) Tax-free retirement account (Roth IRA, Roth 401k...)

Let's start...

(1) Taxable account (no special tax advantages)

Our investor payed $24,000 in tax (24% of $100,000) on the earned money that went into stocks (no tax advantage, no retirement account). Let's say her bank balance is -$24,000, the initial stock basis is $100,000, and the government gained $24,000.

Each year, she earned an average of $10,000 in dividends, which were taxed at 0%. These dividends were reinvested, adding $400,000 to the tax basis over 40 years. So total stock tax basis is $500,000. That's 25% of the total current stock value at retirement of $2,000,000.

Now, in retirement, she wants to live off $100,000. At 2%, the dividends earned this year total $20,000. That means our investor has to sell $80,000 worth of stock. That amount has a tax basis of $20,000 (25%). So the capital gain of that $80,000 is $60,000.

The standard deduction is $12,200, making the taxable income $87,800. So the highest tax bracket for the dividends and capital gains is 15%. The $20,000 in dividends is less than $39,375, so it's all taxed at 0%. The $60,000 in capital gains is made up of $39,375 taxed at 0% and the rest ($20,625) taxed at 15%, or $3094.

So our investor would have to pay only $3094 in tax each year. But has a bank balance of -$24,000. That's a surprisingly low amount of tax, don't you think? The Roth IRA version of this story would be pretty similar, but end up paying zero tax in retirement, instead of $3000. It's not that different!

Have I made a mistake anywhere? Please let me know. I'll work on other examples in future and hopefully I can compile all the info into one big report for future reference.

- vnatale
- Executive Member
**Posts:**986**Joined:**Fri Apr 12, 2019 8:56 pm**Location:**Montague, MA-
**Contact:**

### Re: Investment locations?

Thank you for this! Because I am continuing to read this (wonderful) recommended book (The Overtaxed Investor), I will not respond right now. But I will go through all you have below in detail and will respond.

Vinny

Vinny

Pet Hog wrote: ↑Wed Oct 16, 2019 8:45 pmThis topic is so fundamental to PP investing, I think we need to reach a definitive consensus. I need some numbers to understand the complexity, and I would love it if you all would correct me if I make a mistake below. Thanks.

Let's consider a PP investor, who invests in the four assets, but let's consider each asset alone for optimizing its tax consequences. Let's make her female so I don't have to write "he/she" repeatedly!

Over the working years (let's say 40 years), our investor invested a total of $100,000 in stocks ($2500 per year), and also reinvested all dividends, which yielded 2% each year. She was always in the 24% tax bracket during those working years. After 40 years, she now has $2,000,000, a handsome return. For more simplicity, I'm going to guess an average balance of $500,000 over the 40 years, so the average dividend each year was $10,000.

Our investor chooses to retire on $100,000 per year, and -- again, for simplicity -- doesn't take social security or get a pension, just lives off her investments.

Considering a single person, with 2019 tax brackets all the way from today to 40 years back (yeah, it's a stretch, but, again, for simplicity -- or consider this scenario a future prediction with rates staying the same for the next 40 years):

10% $0+

12% $9,700+

22% $39,475+

24% $84,200+ (<-- assuming our investor was always in this bracket during earning years)

32% $160,725+

35% $204,100+

37% $510,300+

Long-term capital gains and qualified dividends, taxed at following rates based on taxable income:

0% $0+

15% $39,375+ (<-- assuming our investor was always in this bracket during earning years)

20% $434,550+

Standard (and only) deduction: $12,200

There are three possible locations for these investments, and she chooses only one:

(1) Taxable account

(2) Taxable retirement account (Traditional IRA, SEP IRA, traditional 401k...)

(3) Tax-free retirement account (Roth IRA, Roth 401k...)

Let's start...

(1) Taxable account (no special tax advantages)

Our investor payed $24,000 in tax (24% of $100,000) on the earned money that went into stocks (no tax advantage, no retirement account). Let's say her bank balance is -$24,000, the initial stock basis is $100,000, and the government gained $24,000.

Each year, she earned an average of $10,000 in dividends, which were taxed at 0%. These dividends were reinvested, adding $400,000 to the tax basis over 40 years. So total stock tax basis is $500,000. That's 25% of the total current stock value at retirement of $2,000,000.

Now, in retirement, she wants to live off $100,000. At 2%, the dividends earned this year total $20,000. That means our investor has to sell $80,000 worth of stock. That amount has a tax basis of $20,000 (25%). So the capital gain of that $80,000 is $60,000.

The standard deduction is $12,200, making the taxable income $87,800. So the highest tax bracket for the dividends and capital gains is 15%. The $20,000 in dividends is less than $39,375, so it's all taxed at 0%. The $60,000 in capital gains is made up of $39,375 taxed at 0% and the rest ($20,625) taxed at 15%, or $3094.

So our investor would have to pay only $3094 in tax each year. But has a bank balance of -$24,000. That's a surprisingly low amount of tax, don't you think? The Roth IRA version of this story would be pretty similar, but end up paying zero tax in retirement, instead of $3000. It's not that different!

Have I made a mistake anywhere? Please let me know. I'll work on other examples in future and hopefully I can compile all the info into one big report for future reference.

"I only regret that I have but one lap to give to my cats."

### Re: Investment locations?

Scenario (2): Stock investing in a Traditional IRA. Same background as before.

Our investor places $100,000 over 40 years into a Trad IRA. She gets a tax break on that money. She's in the 24% tax bracket, so there is a saving of $24,000 relative to the previous example. We can consider her to have a bank balance of $0.

She reinvests all the dividends. No tax on the dividends because all the trading is in a Trad IRA. The balance grows to $2,000,000.

After 40 years, our investor decides to retire and withdraw $100,000 each year from the Trad IRA. It's all considered ordinary income. The standard deduction is $12,200. So her taxable income is $87,800. That puts her in the 24% tax bracket. A reminder of the brackets:

10% $0+

12% $9,700+

22% $39,475+

24% $84,200+

32% $160,725+

35% $204,100+

37% $510,300+

She pays 10% on the first $9700, or $970.

She pays 12% on the next $29,775, or $3573.

She pays 22% on the next $44,725, or $9840.

She pays 24% on the next $3600, or $864.

In total she will pay $15,274 each year, but her bank balance is $0.

I hope I've made a mistake, because this scenario sucks! What's the advantage of tax deferral?

Our investor places $100,000 over 40 years into a Trad IRA. She gets a tax break on that money. She's in the 24% tax bracket, so there is a saving of $24,000 relative to the previous example. We can consider her to have a bank balance of $0.

She reinvests all the dividends. No tax on the dividends because all the trading is in a Trad IRA. The balance grows to $2,000,000.

After 40 years, our investor decides to retire and withdraw $100,000 each year from the Trad IRA. It's all considered ordinary income. The standard deduction is $12,200. So her taxable income is $87,800. That puts her in the 24% tax bracket. A reminder of the brackets:

10% $0+

12% $9,700+

22% $39,475+

24% $84,200+

32% $160,725+

35% $204,100+

37% $510,300+

She pays 10% on the first $9700, or $970.

She pays 12% on the next $29,775, or $3573.

She pays 22% on the next $44,725, or $9840.

She pays 24% on the next $3600, or $864.

In total she will pay $15,274 each year, but her bank balance is $0.

I hope I've made a mistake, because this scenario sucks! What's the advantage of tax deferral?

### Re: Investment locations?

I didn't say it was recommended by the book. In this case, I'm the investment advisor, and I do it out of my own convenience.

It's just too much predicting the future for me to arrange things as one big PP. For example, does the professional consensus consider how negative interest rates will affect whether bonds should be in taxable or tax deferred? What will the tax regime look like in 40 years? Who knows!

### Re: Investment locations?

Scenario (3) : Roth IRA.

Same background as before. Our investor puts $100,000 into a Roth IRA. She gets no tax benefit for doing so. She pays 24% on that money earned before investment. We can consider her to have a bank balance of -$24,000.

Over 40 years she reinvests the dividends, averaging $10,000 a year, but it's all in a Roth account so there are no tax consequences.

She retires and decides to withdraw $100,000 each year from the Roth IRA. It's all tax free -- she pays no tax, but has a bank balance of -$24,000.

----------

Clearly, this scenario is the winner, as long as the lady lives for two years in retirement (she will have lost only $24,000 after two years of retirement). Otherwise, the Trad IRA wins (it loses about $30,000 after two years of retirement). Keeping the money in a taxable account will be about $3000 worse off each year than the Roth approach.

Of course, I have made many assumptions in this analysis, and each of our scenarios will be different, with different tax brackets and timeframes, and I haven't considered state taxes. But I think it's an interesting analysis. And I might have made some mistakes. Please correct me!

If I were to rank the strategies for stock investing, I would say Roth, followed closely by taxable, but definitely don't invest in a Trad IRA.

Thoughts?

Same background as before. Our investor puts $100,000 into a Roth IRA. She gets no tax benefit for doing so. She pays 24% on that money earned before investment. We can consider her to have a bank balance of -$24,000.

Over 40 years she reinvests the dividends, averaging $10,000 a year, but it's all in a Roth account so there are no tax consequences.

She retires and decides to withdraw $100,000 each year from the Roth IRA. It's all tax free -- she pays no tax, but has a bank balance of -$24,000.

----------

Clearly, this scenario is the winner, as long as the lady lives for two years in retirement (she will have lost only $24,000 after two years of retirement). Otherwise, the Trad IRA wins (it loses about $30,000 after two years of retirement). Keeping the money in a taxable account will be about $3000 worse off each year than the Roth approach.

Of course, I have made many assumptions in this analysis, and each of our scenarios will be different, with different tax brackets and timeframes, and I haven't considered state taxes. But I think it's an interesting analysis. And I might have made some mistakes. Please correct me!

If I were to rank the strategies for stock investing, I would say Roth, followed closely by taxable, but definitely don't invest in a Trad IRA.

Thoughts?

### Re: Investment locations?

OK, I spotted one mistake already, but it means that our lady friend actually ends up paying even less tax.

In scenario (1), 2% of $2,000,000 in retirement means $40,000 a year in dividends, not $20,000. So she needs to sell only $60,000 in stocks (to live off $100,000), meaning $45,000 in capital gain ($15,000 was the tax basis of that $60,000). The 15% dividend and capital gain tax bracket is at $39,375, so she pays 15% capital gains tax on $5625 (that's just $844) and for dividends pays 15% tax on $625 (that's just $94) -- in total she pays only $938 per year (and has a bank balance of -$24,000).

Am I misinterpreting the tax on capital gains and dividends. Can they be considered separately, or should I add them up? In this case, it would be $85,000 in combined capital gains and dividends, so should I consider the first $39,375 as tax-free and the rest ($45,625) taxed at 15%, or $6844?

### Re: Investment locations?

OK, I'll do one more, for long-term treasuries.

Same situation and history for the lady investor. But now she is investing $100,000 only in LTTs. For a coupon yield, I'm going to pick 2%, close to what it is today.

The investor buys the LTTs in a taxable account, Scenario (1). Again, she reinvests all the dividends, but now there is no special tax rate for that money, it's all ordinary income (state tax exempt, but I'm ignoring state taxes -- assume she lives in Texas or wherever). Her bank balance is -$24,000.

In the stock scenario, the $500,000 tax basis grew to $2,000,000. I'm going to make an assumption that again the gain in portfolio value is triple the tax basis. It's a fudge, but I don't want to have to do complicated calculations. I think Excel would come in handy here -- I'm already seeing some problems

She gets a 2% coupon dividend annually. It's taxed at 24%, so there is an after-tax yield of 1.52%. She reinvests it in LTTs. That 1.52% is about a quarter less than the 2% stock dividend from last time. So she won't be adding as much to her tax basis and the portfolio won't grow as high as $2,000,000 (although long term, the returns on LTTs are similar to those for stocks, right?) I'm going to assume she adds a quarter less to her overall tax basis, so 75% of $400,000 (that was the increase in tax basis in the stock scenario), or $300,000. On top of the $100,000 she added in annual contributions, the total tax basis after 40 years is $400,000. And I'm assuming that quadruples to $1,600,000 with investment returns -- that's 20% less than in the stock case. So the average annual coupon payments will be 20% less than in the stock example, giving $8000. OK, fudging over.

Over 40 years, getting an average coupon of $8000, she pays 24% of that in tax, or $1920 annually. For 40 years, that's $76,000. (I think we can all already see that a Trad IRA or Roth IRA is going to be a wise choice!) Her bank balance totals -$100,800 before she retires. Wow!

Another complication with this analysis: As a PP devotee, she sells the bonds after 10 years and buys new 30-year treasuries, incurring a capital gains tax bill four times during the 40-year investment period. (Oh boy, I want to give up -- too complicated and tax-inefficient! I'm going to ignore this extra tax burden, "for simplicity.")

Upon retirement, she withdraws $100,000 annually from her LTT portfolio, valued at (probably much less than) $1,600,000 and earning a coupon of 2%. That's a dividend of $32,000 -- all considered ordinary income. She has to sell $68,000 of LTTs, with a cost basis (25%) of $17,000, so a capital gain of $51,000.

The capital gain of $51,000 would be taxed at 0% up to $39,375 and 15% thereafter (on $11,625). That's $1744 annually. The $32,000 in coupons is ordinary income, but there's the standard deduction of about $12,000 to consider, so that's a taxable income of about $20,000. That would be taxed at about 15%-ish, so perhaps another $3000. Total annual tax bill of around $4700. And a bank balance of -$100,000.

Even with all this fudging, and many potential mistakes, I conclude this investment approach is a complete failure.

Same situation and history for the lady investor. But now she is investing $100,000 only in LTTs. For a coupon yield, I'm going to pick 2%, close to what it is today.

The investor buys the LTTs in a taxable account, Scenario (1). Again, she reinvests all the dividends, but now there is no special tax rate for that money, it's all ordinary income (state tax exempt, but I'm ignoring state taxes -- assume she lives in Texas or wherever). Her bank balance is -$24,000.

In the stock scenario, the $500,000 tax basis grew to $2,000,000. I'm going to make an assumption that again the gain in portfolio value is triple the tax basis. It's a fudge, but I don't want to have to do complicated calculations. I think Excel would come in handy here -- I'm already seeing some problems

She gets a 2% coupon dividend annually. It's taxed at 24%, so there is an after-tax yield of 1.52%. She reinvests it in LTTs. That 1.52% is about a quarter less than the 2% stock dividend from last time. So she won't be adding as much to her tax basis and the portfolio won't grow as high as $2,000,000 (although long term, the returns on LTTs are similar to those for stocks, right?) I'm going to assume she adds a quarter less to her overall tax basis, so 75% of $400,000 (that was the increase in tax basis in the stock scenario), or $300,000. On top of the $100,000 she added in annual contributions, the total tax basis after 40 years is $400,000. And I'm assuming that quadruples to $1,600,000 with investment returns -- that's 20% less than in the stock case. So the average annual coupon payments will be 20% less than in the stock example, giving $8000. OK, fudging over.

Over 40 years, getting an average coupon of $8000, she pays 24% of that in tax, or $1920 annually. For 40 years, that's $76,000. (I think we can all already see that a Trad IRA or Roth IRA is going to be a wise choice!) Her bank balance totals -$100,800 before she retires. Wow!

Another complication with this analysis: As a PP devotee, she sells the bonds after 10 years and buys new 30-year treasuries, incurring a capital gains tax bill four times during the 40-year investment period. (Oh boy, I want to give up -- too complicated and tax-inefficient! I'm going to ignore this extra tax burden, "for simplicity.")

Upon retirement, she withdraws $100,000 annually from her LTT portfolio, valued at (probably much less than) $1,600,000 and earning a coupon of 2%. That's a dividend of $32,000 -- all considered ordinary income. She has to sell $68,000 of LTTs, with a cost basis (25%) of $17,000, so a capital gain of $51,000.

The capital gain of $51,000 would be taxed at 0% up to $39,375 and 15% thereafter (on $11,625). That's $1744 annually. The $32,000 in coupons is ordinary income, but there's the standard deduction of about $12,000 to consider, so that's a taxable income of about $20,000. That would be taxed at about 15%-ish, so perhaps another $3000. Total annual tax bill of around $4700. And a bank balance of -$100,000.

Even with all this fudging, and many potential mistakes, I conclude this investment approach is a complete failure.

### Re: Investment locations?

For some light relief, on to Scenario (2): Trad IRA.

Same history. $100,000 invested, and a tax break. Her bank balance is $0. She earns 2% in dividends and invests it all -- no taxes along the way. The portfolio grows to $2,000,000.

After 40 years, she retires. Withdraws $100,000 from her Trad IRA. It's all considered ordinary income. With a standard deduction of $12,200, she has an adjusted income of $87,800. That puts her in the 24% tax bracket and, just like in the stock Trad IRA scenario, she pays $15,274 each year. But her bank balance is $0.

This scenario might be better than keeping the LTTs in taxable, but the longer the retirement lasts the worse it might get in comparison.

----------

Quickly onto Scenario (3): Roth IRA.

It's the same as the stock Roth IRA situation. A bank balance of -$24,000, but zero tax liability upon retirement.

----------

Assuming I've made no mistakes (I doubt it), I'm going to conclude that this lady would benefit greatly from a Roth IRA for LTTs. The other two scenarios are pretty tax-heavy.

Same history. $100,000 invested, and a tax break. Her bank balance is $0. She earns 2% in dividends and invests it all -- no taxes along the way. The portfolio grows to $2,000,000.

After 40 years, she retires. Withdraws $100,000 from her Trad IRA. It's all considered ordinary income. With a standard deduction of $12,200, she has an adjusted income of $87,800. That puts her in the 24% tax bracket and, just like in the stock Trad IRA scenario, she pays $15,274 each year. But her bank balance is $0.

This scenario might be better than keeping the LTTs in taxable, but the longer the retirement lasts the worse it might get in comparison.

----------

Quickly onto Scenario (3): Roth IRA.

It's the same as the stock Roth IRA situation. A bank balance of -$24,000, but zero tax liability upon retirement.

----------

Assuming I've made no mistakes (I doubt it), I'm going to conclude that this lady would benefit greatly from a Roth IRA for LTTs. The other two scenarios are pretty tax-heavy.

### Re: Investment locations?

This might be easier: gold. Same lady, same strategy and history.

She invests $100,000 in gold in taxable account, Scenario (1). She never sells for 40 years. There are no dividends. The gold goes up in value to $2,000,000. I think that, long term, gold has done almost as well as stocks, so it might not be a bad assumption. Her bank balance is -$24,000, having received no tax benefit for buying the gold outside a retirement account.

After 40 years, she retires and chooses to live off $100,000 withdrawn from her taxable account. Again, she has an adjusted income of $87,200, putting her in the 24% tax bracket. As a collectable, gold is taxed at her marginal tax rate (maximum of 28%), so she pays $15,274 each year, just as if it were all ordinary income. But her bank balance is -$24,000.

--------

Scenario (2): Trad IRA.

As above, but with a bank balance of $0, when she withdraws $100,000 from the Trad IRA the money is all ordinary income. So she pays $15,274 each year.

No bank balance makes this scenario better than that in (1) above. If she withdrew more and entered a higher tax bracket, this approach might be worse than that above, because gold has a favorable collectable tax rate of at most 28%. Ordinary income, not so favorable -- up to 37%.

----------

Scenario (3): Roth IRA

As in the stock and bond scenarios, she would have a -$24,000 bank balance, but pay no tax in retirement. So this strategy wins as long as the retirement lasts two years.

----------

For cash, I'm going to assume the results are pretty similar to those for LTTs. As in, don't put it in taxable.

----------

To conclude, Roth seems to win in each case, but stocks provide almost identical returns in taxable. Gold might be better in taxable than in Trad IRA if you withdraw a lot of it -- the 32% ordinary income bracket starts at $160,725. Lots of assumptions made in these analyses, so consider your own unique individual situation.

Please let me know if I have made big blunders. I'm sure I have. It was an interesting exercise for me. I never realized Roth IRAs were that good in every case. And I might have to reconsider taxable accounts for stock investing. I'm not expecting to withdraw $100,000 in retirement, so my own personal numbers will be different.

Finally, I guess there's at least one more analysis to conduct: an actual PP with all four assets in each type of investment account. I don't think it will be as easy as modeling a combination of the four individual components considered separately. But probably Roth wins, right?

She invests $100,000 in gold in taxable account, Scenario (1). She never sells for 40 years. There are no dividends. The gold goes up in value to $2,000,000. I think that, long term, gold has done almost as well as stocks, so it might not be a bad assumption. Her bank balance is -$24,000, having received no tax benefit for buying the gold outside a retirement account.

After 40 years, she retires and chooses to live off $100,000 withdrawn from her taxable account. Again, she has an adjusted income of $87,200, putting her in the 24% tax bracket. As a collectable, gold is taxed at her marginal tax rate (maximum of 28%), so she pays $15,274 each year, just as if it were all ordinary income. But her bank balance is -$24,000.

--------

Scenario (2): Trad IRA.

As above, but with a bank balance of $0, when she withdraws $100,000 from the Trad IRA the money is all ordinary income. So she pays $15,274 each year.

No bank balance makes this scenario better than that in (1) above. If she withdrew more and entered a higher tax bracket, this approach might be worse than that above, because gold has a favorable collectable tax rate of at most 28%. Ordinary income, not so favorable -- up to 37%.

----------

Scenario (3): Roth IRA

As in the stock and bond scenarios, she would have a -$24,000 bank balance, but pay no tax in retirement. So this strategy wins as long as the retirement lasts two years.

----------

For cash, I'm going to assume the results are pretty similar to those for LTTs. As in, don't put it in taxable.

----------

To conclude, Roth seems to win in each case, but stocks provide almost identical returns in taxable. Gold might be better in taxable than in Trad IRA if you withdraw a lot of it -- the 32% ordinary income bracket starts at $160,725. Lots of assumptions made in these analyses, so consider your own unique individual situation.

Please let me know if I have made big blunders. I'm sure I have. It was an interesting exercise for me. I never realized Roth IRAs were that good in every case. And I might have to reconsider taxable accounts for stock investing. I'm not expecting to withdraw $100,000 in retirement, so my own personal numbers will be different.

Finally, I guess there's at least one more analysis to conduct: an actual PP with all four assets in each type of investment account. I don't think it will be as easy as modeling a combination of the four individual components considered separately. But probably Roth wins, right?