The order
Four steps. This strategy is the fourth.
| Priority | Why |
|---|---|
| 1. 401(k) to the full match | A match paying fifty cents on the dollar is an instant 50% on what you put in, on day one, with no market risk attached to the match itself. Nothing in this article competes with it and nothing on this site does either. |
| 2. Max the tax-advantaged space | Traditional or Roth, according to your bracket now against your bracket later. The deduction on a traditional plan is worth a head start that compounds from the first day. |
| 3. A conservative bridge, if you retire early | Money you expect to spend within about ten years does not belong in a strategy whose worst drawdown was 58.3%. |
| 4. This strategy | Long-horizon taxable money with nowhere better to go. That is a real category, and it is the one this tool is for. |
Why the match wins by so much
A match paying fifty cents per dollar returns 50% on your contribution the moment it lands, before it is invested in anything. The overlay measured here adds +1.2 pts a year at 25% exposure.
Fifty cents per dollar is a common formula, not a universal one. Plenty of plans pay a dollar per dollar up to a lower ceiling, which is a 100% return on a smaller amount, and some pay nothing at all. The number that matters is your own plan's, and whatever it is, it arrives at once and this strategy does not.
Those two numbers are not on the same footing and it is worth being exact about why. The match is arithmetic on a contribution and it happens once, immediately, whatever the market does next. The overlay figure is an average annual increment measured across 7,537 backtested cycles, it is not guaranteed in any single year, and 13% of those cycles lost money. A number that arrives with certainty on day one and a number that is an average over thirty years of history are different kinds of thing, and the first one wins without the second needing to be evaluated.
The deduction, without a match
Even with no match at all, a traditional plan lets you put more to work up front. At a 32% marginal rate, a dollar of pre-tax income becomes a dollar inside the account and 68 cents outside it, so the account starts with about 47% more invested.
1 ÷ (1 − 0.32) = 1.47. That is arithmetic on a marginal rate rather than a backtest result, which is why it appears here with a figure attached when most claims on this site do not.
A head start of that size compounds from day one. The overlay's edge is a fraction of a point a year against it. On any reading, and for a long time, the tax-advantaged account is ahead. A Roth is closer, because the head start is not there, and it still wins on the tax treatment of everything the account earns afterwards.
And you cannot run this strategy in there
This is the part people are usually surprised by. Retirement accounts are not permitted to borrow, so any options position requiring margin is prohibited inside them. That rules out the overlay as this tool sizes it.
Cash-secured puts are allowed, and they are a different strategy: holding cash against the strike rather than shares. The cash earns no equity return, so the position gives up the thing that produces most of the return in the first place.
The two honest exceptions
Money you will need before 59½ has a real reason not to be locked up, and that reason has nothing to do with returns. And money with no tax-advantaged home left is exactly what this tool is for: somebody who has taken the match, filled the space available to them, and has long-horizon taxable money beyond it.
If you have not filled the space above, close this and go and do that. It is worth more than anything measured on this site, it takes one afternoon, and it does not require you to understand options.