Does anyone else feel trapped by their IRA? When IRAs blossomed in the 1980s I did like so many others and annually contributed the max. Though I knew pre-tax IRA funds would be taxed upon withdrawal, years elapsed before I learned those withdrawals would be taxed at ordinary income rates. For many who accumulate via LBYM, rate brackets will not be much lower after FIRE than before.
Had I instead put those contributions into, say, Exxon stock held outside the IRA, where dividends and capital gains are taxed less that ordinary income, I think it would now be worth more after tax than my IRA is. Even better than Exxon would be to buy and hold a growth stock that pays minimal dividends since its capital gains can be deferred indefinitely. Conclusion: unless after FIRE one's ordinary income rate will be less than dividend/CG rates, IRAs are a trap.
Had I instead put those contributions into, say, Exxon stock held outside the IRA, where dividends and capital gains are taxed less that ordinary income, I think it would now be worth more after tax than my IRA is. Even better than Exxon would be to buy and hold a growth stock that pays minimal dividends since its capital gains can be deferred indefinitely. Conclusion: unless after FIRE one's ordinary income rate will be less than dividend/CG rates, IRAs are a trap.