Most do not consider tax consequences of their Ira or 401k I would guess. thus they tend to speak in gross numbers or pretax numbers. I think this tends to be the case because taxes in drawdown could be variable and unpredictable and even state location dependent and so it's just easier to talk pre-tax. I suppose one could apply a simple rule of thumb say 70 percent of tax deferred accounts as a net worth number. Same could he said for taxable accounts with say, significant unrealized long term capital gains.
I like to think of it as all net numbers. Not owing anyone anything including Uncle Sam on taxes. I have a few rules of thumb but for simplicity I track gross numbers and do the net conversion just once a year as I calculate projected margins tax rates etc.
Same goes for house value - most do not adjust for liquidation realtor fees for example. It's just complex to do it ... And probably just an academic exercise and not altering ones plan significantly.
I just track them as dollars and include tax in my expenses. It is slightly misleading as dollars in the pre-tax investments will provoke tax expenses to access them, while dollars in post-tax accounts will not, but I expect to have an ongoing campaign to minimize taxes by spreading conversions and spending over as many years as possible, so broad averages are probably good enough for planning purposes.
How about the other angle, investments. Lets say 50% pretax and the rest taxable. Lets say you have a two fund portfolio. Do you equal weight them ?
Let assume both funds have the same costs, risks, return expectations.
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Like someone else said, I track a dollar as a dollar for NW. Those dollars work for you in investments, so I account for them now.
However, I also keep an "debit" category in quicken that I update 4 times a years based on the worth of my IRAs and 401ks. I take 35% of that value and create a debit. This just gives me a feel for what would happen if I liquidated all at once. So I look at both numbers.
Calculating net worth at any particular point in time is pretty much just an academic exercise. For retirement planning, I simply gross up my income needs to account for taxes.
With just the standard deduction, the federal tax bill for a married filing jointly with $120,000 of taxable income would be only $16,638. (an average of 13.9%. Simple calculator here: Tax Calculator - Estimate Your Tax Liability | Calculators by CalcXML ) You can add a little for state tax as necessary. For example, my state tax bill is usually about one-third of my federal tax bill. And, if you want, you can shave a little to account for some income being from after tax sources. To be conservative, I just assume it's all taxable and set my nest egg goal to generate that amount. Thus, if I want to spend $100,000 per year, I'll need to generate about $122,000 in taxable income from a combination of pensions, social security and withdrawals from my nest egg. Could it be more precisely calculated? Certainly, but it works for me.
Calculating net worth at any particular point in time is pretty much just an academic exercise. .........
Qualified equity dividends in after tax account will actually be very favourably treated. One pays no taxes on 80k income
So combine lets say 40k of such dividends with 40k withdrawn from 401k and you are in MUCH better shape then someone withdrawing 80k from 401k.
Yes one does. Perhaps two don't.Qualified equity dividends in after tax account will actually be very favourably treated. One pays no taxes on 80k income
Calculating net worth at any particular point in time is pretty much just an academic exercise. For retirement planning, I simply gross up my income needs to account for taxes.
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