Pre / Post Tax Firecalc Question

[cc3159]

Say I have $ 500K in my (pre-taxed) 401K and $ 500K in my (post-taxed) mutual fund. Would I put $ 1 million into the portfolio field in FIRECalc or do I need to first reduce the 401K amount by the taxes that will be eventually be due?

 

[ziggy29]

FIREcalc doesn't factor in taxes and generally everything is entered pre-tax. So in your case, you'd use $1M. You need to factor in taxes when you input the amount of income you need since it's "pre-tax" income.

 

[REWahoo]

What Ziggy said.

From the FIRECalc "How It Works" page:

Why don't you have a space for taxable portfolio and another space for nontaxable portfolio?

FIRECalc ignores taxable versus nontaxable portfolios right now. Since it only uses historical data to determine how a portfolio would behave, with no guesses by anyone about what will happen to inflation, market performance, and so forth, and we don't have historical tax rates for the period for which I have market data, I can't add tax planning without changing the philosophy of the program. Just planning on x% tax rates would make all the historical examples meaningless, when changing tax rates would have at least some effect on the market returns.

If I can figure out how to do this in a way that would not corrupt the results, I'll do it. For now, I prefer to leave the tax planning portion to programs like www.i-orp.com -- an outstanding tool!

 

[youbet]

What Ziggy and REWahoo said.....

I find it beneficial to look at taxes as a budget item (an expense) and plan to have income to pay them rather than look at taxes as a reduction to income.