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Vanguard/Fidelity Tax estimates
Old 07-19-2019, 08:27 PM   #1
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Vanguard/Fidelity Tax estimates

Curious if anyone has experience with vanguard and fidelity tax estimates when drawing mainly from taxable accounts. We just had our plan reviewed by vanguard and their tax estimates were far higher that mine (like >3x!). I noticed this when using the fidelity RIP tool as well and thought it was just an artifact of not taking taxable accounts into account, but now Iím worried maybe Iím missing something. Would love to hear how others fared in the tax front with plans put together by them.
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Old 07-19-2019, 11:49 PM   #2
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When I ran iOrp, the calculated taxes were high for our situation. I have not used Vanguard/Fidelity for tax estimates. If you use TurboTax, there is a "what-if" feature that you can plug in numbers to see what your situation will look like. Or, you can post some "theoretical" numbers here and I am sure you can get some pretty good feedback.
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Old 07-20-2019, 08:58 AM   #3
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Originally Posted by N02L84ER View Post
When I ran iOrp, the calculated taxes were high for our situation. I have not used Vanguard/Fidelity for tax estimates. If you use TurboTax, there is a "what-if" feature that you can plug in numbers to see what your situation will look like. Or, you can post some "theoretical" numbers here and I am sure you can get some pretty good feedback.
Yes, iorp is high for us as well, but at least itís not off by 3x! Iíve plugged our numbers into several online calculators but donít have full version of turbo tax. These all give me estimates taxes of ~25k. Vanguard and Fidelity both give us >80k liability.

We actually had our accountant run a couple of scenarios and her numbers were much closer to mine, but DH is convinced that the Ďexpertsí at Vanguard and Fidelity who do this all the time canít be wrong... Obviously, a 50k differential blows my plan up

I didnít want to distract from Q by posting actual $ amounts, but will give it a shot and see how it goes...

An example scenario:

Income
Pull 260k from taxable account. Cost basis of 130k
70k in qualified dividends

Deductions
Two kids, MFJ
30k of medical expenses
25k of mortgage interest
26k in property taxes

Vanguard tells us our tax liability on this is ~83k.
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Old 07-20-2019, 11:01 AM   #4
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Fidelity client here. IIRC, during our planning stage, our rep told us to ignore the tax estimate in their RIP. There are too many variables and Fido just can't get it right. I think it assumed all withdrawals would first be taken as RMDs and overestimated tax impact.

You really need to crunch the numbers yourself.
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Old 07-20-2019, 12:12 PM   #5
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Originally Posted by TrvlBug View Post
Fidelity client here. IIRC, during our planning stage, our rep told us to ignore the tax estimate in their RIP. There are too many variables and Fido just can't get it right. I think it assumed all withdrawals would first be taken as RMDs and overestimated tax impact.

You really need to crunch the numbers yourself.
That's helpful. I can see why they wouldn't want to give too much tax advice, since people's situations can vary so dramatically. The only way I can get to their estimates is by assuming 100% of our withdrawal is taxable and we receive standard MFJ deduction. That would be ok, but they explicitly say that they take into account tax deferred accounts! I wonder if you're correct in assuming early tax liability is from RMDs. That might partially explain things...

I've crunched the numbers myself over and over and sent to our tax person to review, but this has DH worried, since they're the 'experts' who do this all the time! I think maybe we should probably get an outside opinion from a CFA who's looking at out specific situation and can double check my numbers crunching and give DH a little more comfort.
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Old 07-20-2019, 03:01 PM   #6
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Originally Posted by tb001 View Post
Yes, iorp is high for us as well, but at least itís not off by 3x! Iíve plugged our numbers into several online calculators but donít have full version of turbo tax. These all give me estimates taxes of ~25k. Vanguard and Fidelity both give us >80k liability.

We actually had our accountant run a couple of scenarios and her numbers were much closer to mine, but DH is convinced that the Ďexpertsí at Vanguard and Fidelity who do this all the time canít be wrong... Obviously, a 50k differential blows my plan up

I didnít want to distract from Q by posting actual $ amounts, but will give it a shot and see how it goes...

An example scenario:

Income
Pull 260k from taxable account. Cost basis of 130k
70k in qualified dividends

Deductions
Two kids, MFJ
30k of medical expenses
25k of mortgage interest
26k in property taxes

Vanguard tells us our tax liability on this is ~83k.

I get an income of 130k + 70k = 200k
I get deductions of

Medical 30k - (200k times 10%) = 30k - 20k = 10k (if over 65 use 7.5%)

Mortgage 25k
Property SALT limit 10k
Total deductions 10k + 25k + 10k = 45k (exceeds standard deduction)


Taxable income = 200k - 45k = 155k


With 70k qualified dividends and assuming the 130k is LTCG, the income in the 10% and 12% brackets are taxed at 0%. The remaining income is in the 22% bracket and is taxed at 15%.
(155000 - 78950) times 15% = 76050 * 15% = $11,407.50


We do not have dependent children and do not know if there are any tax credits for which you may qualify.



If I made any incorrect assumptions or calculations, please let me know.
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Old 10-01-2019, 09:39 AM   #7
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Originally Posted by N02L84ER View Post
I get an income of 130k + 70k = 200k
I get deductions of

Medical 30k - (200k times 10%) = 30k - 20k = 10k (if over 65 use 7.5%)

Mortgage 25k
Property SALT limit 10k
Total deductions 10k + 25k + 10k = 45k (exceeds standard deduction)


Taxable income = 200k - 45k = 155k


With 70k qualified dividends and assuming the 130k is LTCG, the income in the 10% and 12% brackets are taxed at 0%. The remaining income is in the 22% bracket and is taxed at 15%.
(155000 - 78950) times 15% = 76050 * 15% = $11,407.50


We do not have dependent children and do not know if there are any tax credits for which you may qualify.



If I made any incorrect assumptions or calculations, please let me know.

Thank you! I must have missed your reply earlier.

Just to close the loop, for those who may be experiencing the same thing, we spoke with our vanguard advisor again to review the plan and I asked him about the tax estimates. He acknowledged they were wildly high. As I understand it, their software treats all or most dollars as regular income, so over estimates taxes considerably. He ended up doing a plug to offset the additional tax spend and weíre now firmly in the green scenarios. A big relief to me and to DH! Now we can think about OMY syndrome, but if my job disappears, which it may, all will be ok.
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Old 10-01-2019, 10:00 AM   #8
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For any calculator that will allow it, I input my FED and State tax rates at 0% and just account for taxes in total expenses. I haven't found a calculator yet that is very accurate when it comes to taxes.

For example, one calculator I use is New Retirement. I really like it. But, when I downloaded the data into a spreadsheet, the income taxes were all over the place. For example, year 7 taxes were $15K (still way too high) and the next year the taxes went up to $35K. Income only increased a few thousand. Makes all of the numbers suspect.
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Old 10-01-2019, 10:47 AM   #9
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Originally Posted by PatrickA5 View Post
For any calculator that will allow it, I input my FED and State tax rates at 0% and just account for taxes in total expenses. I haven't found a calculator yet that is very accurate when it comes to taxes.

For example, one calculator I use is New Retirement. I really like it. But, when I downloaded the data into a spreadsheet, the income taxes were all over the place. For example, year 7 taxes were $15K (still way too high) and the next year the taxes went up to $35K. Income only increased a few thousand. Makes all of the numbers suspect.
I think this is the way I'll approach it going forward. At a minimum, this was helpful in pushing me to be more rigorous in how we're approaching taxes. I went through and calculated taxes for a number of scenarios across our potential timeline (e.g. MFJ vs single filing, etc...). As a result, I upped our spend estimates in the out years by a bit to be more conservative.

One upside was that the vanguard advisor called out how strong my planning was and told DH he doesn't know why we would need them, as I've got it down. So a big thank you to all of the people here! My ER IQ has increased considerably in the ~18mo I've been reading this board.
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