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Pretax savings
Old 03-16-2018, 02:10 PM   #1
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Pretax savings

Is there a workaround of Firecalc for the fact that about half of our savings are in retirement accounts as yet untaxed? They are in the market but not like the other investments. Should I just chop off about 20% from that figure? Thanks!

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Old 03-16-2018, 02:18 PM   #2
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FIRECalc ignores the tax status of your investments. I consider taxes on my portfolio to be part of my annual expenses and account for them in my withdrawal rate.

Numbers is hard

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Old 03-16-2018, 02:36 PM   #3
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I haven't used Firecalc in awhile so I don't recall the mechanics, but in general it works to discount your pretax accounts by your estimated fed+state tax rate, or make that exact same estimation and include the taxes in your budget. Take your pick what makes sense to you. Some people here don't like the idea of discounting the accounts by taxes, but nobody has been able to explain why that doesn't work just as well.
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Old 03-16-2018, 05:49 PM   #4
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There looks to be several ways to accomplish this from the above posts.

It may be wise to try it both way and ensure that the answer is the same. Just sayin'..

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Old 03-16-2018, 06:09 PM   #5
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Tax is just another expense category. You need to figure it out, I don't think Firecalc estimates tax.
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Old 03-16-2018, 06:22 PM   #6
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+1 the most common approach is to include a provision for taxes in your budgeted spending. Alternatively, you could input the value of your investments net of taxes and then exclude taxes from your spending. Or do it both ways and see how the results are.

BTW, 20% is probably way too high depending IME especially after considering deductions, exemptions and progressivity of tax rates.

You can get an idea on the amount/percentage by doing a pro forma tax return as if you were retired.
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Old 03-16-2018, 08:16 PM   #7
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You can get one estimate from i-orp. Note that it will sell bonds preferencially, so set your equity percentage the same across all tax categories. Not perfect, but much more accurate than a flat 20% guess.

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