Would you mind explaining your after-tax asset allocation in more depth? It sounds to me as if you are doing something like the following hypothetical calculation:
pre-tax portfolio size = $1,000,000
after-tax value = $900,000
Asset allocaton targets:
50% stocks
50% bonds
If this were your situation, would you invest 50% of $900,000 = $450,000 in stocks and bonds because $900,000 is a more accurate measure of your portfolio's value than $1,000,000? If so, what do you do with the extra $100,000?
Example:
before-tax dollars:
401k balance: 1,000,000
taxable account balance: 1,000,000
Roth balance: 1,000,000
desired allocation: 60/40 stocks bonds (in real, after-tax dollars)
I will use conversion factors from my first response (25% for 401(k) and 10% for taxable)
Calculations:
401k
after-tax dollar balance: 750,000
taxable account
after-tax dollar balance: 900,000
Roth
after-tax dollar balance: 1,000,000
Total: 2,650,000 in
after-tax dollars
So, we want 2,650,000*0.6=1,590k in stocks and 2,650,000*0.4=1,060k in bonds in
after-tax dollars.
Now, the part you were missing, is when you place after-tax money back to 401k for example, you have to convert back to before-tax dollars... In other words, $1 after-tax dollar placed in 401(k) would be 1/0.75=$1.33 before-tax dollars in 401(k). This way, when it gets taxed 25%, you'll get back to $1...
So, if I want to put bonds in 401(k), I will start with trying to fit 1,060,000 / 0.75 = 1,413,333.33 into 401(k). Since I only have 1M (before-tax) space there, I will fill 1M with bonds, which will on after-tax basis be 750k. So, on after-tax basis, I still need to place 1,060k-750k=310k in bonds somewhere. Let's say I place 310k after-tax in bonds into Roth. Due to 1-to-1 conversion in Roth, this is equivalent to 310k before-tax money there.
So, you'd end up with:
Bonds: 1,060k after-tax total split as:
- 401k 1M before tax, or 750k after-tax
- Roth 310k before tax, or 310k after-tax
Stocks: 1,590k after-tax split as:
- taxable 1M before-tax, or 900k after-tax
- Roth 1M-310k = 690k before-tax, or 690k after-tax
P.S. One thing I try to always mentally do when talking about dollars is to have two subscripts next to each number - year and whether it's after-tax or before-tax; for example,
$100 is not very meaningful, especially in planning... to me, it would always be something like
$1002012,before-tax
So, if you keep this in mind, and place these subscripts after each dollar amount, it may help you follow calculations like these...