Lets say Fred makes $200k one year and saves $50k of it in stocks, CDs, or even his checking account. He pays taxes on his $150k consumption. The next year he splurges on something and spends his $200k salary and his $50k savings. He pays taxes on his $250k consumption. The next year he's also living the high life and takes out a $50k loan against whatever and combined with his $200k salary he still pays taxes on his $250k consumption. The next year a parent dies and leaves him $500k. He spends $50k paying off his loan, saves $400k, has a $200k regular income and continues his $250k a year lifestyle. He still pays taxes on the $250k lifestyle he leads.
Unlike a 401k there's no limit to how much he can save paying taxes on it, or any limit on what he can use it on when he spends it. But when investments don't have their cost basis deducted when sold and are rolled in with regular income rather than getting a flat 20% tax.
Unlike a 401k there's no limit to how much he can save paying taxes on it, or any limit on what he can use it on when he spends it. But when investments don't have their cost basis deducted when sold and are rolled in with regular income rather than getting a flat 20% tax.