Poll: What % of net-worth do you still have to pay tax on?

[pixelville]

Poll: What % of net-worth do you still have to pay income tax on?

Inspired by another thread, I thought it might be worthwhile to see from what part of my assets I still need to give gifts to Uncle Sam.

What percentage of your total net-worth, do you still have to pay tax on? You may not have that number handy. I still don't.

Include in the numerator (for instance)
pre-tax 401k IRA: all
Roth, HSA: 0
after-tax 401k IRA: only earnings, no contributions
Brokerage accts: unrealized capital gains/loss
Banks, CDs: 0
I-bonds: tax-deferred income
Home: capital gains (minus 250K/500K)

Inspired by a related thread.
http://www.early-retirement.org/forums/f28/poll-tax-advantage-of-net-worth-84506.html

Don't worry about subtracting potential charitable giving, step-up in basis if you plan to pass it on. Those are deductions on your return and would make it complicated.

Might be even more interesting if we took the numerator and divided it by remaining years (life expectancy, say 80 minus current age). Example, if your networth is 2M, of which you still have to pay tax on 900K and you are 50 years old, then
1. 900K/2M = 45%
2. 900K/(80-50) = 30K per year

 

[sengsational]

I presume we don't include HSA funds, presuming that they'll get spent on health related things?

 

[pixelville]

I presume we don't include HSA funds, presuming that they'll get spent on health related things?

Yes. Edited my post to reflect that.

 

[Car-Guy]

What about things like real estate taxes? Even if you have millions in fully paid for real estate, you'll pay a lot of taxes on that forever.

 

[pixelville]

What about things like real estate taxes? Even if you have millions in fully paid for real estate, you'll pay a lot of taxes on that forever.

Real life is a lot more complicated, agreed! That is part of ongoing expenses. Note, I have not even included annual interest/dividends. Or property tax, sales tax, etc.

I am focusing on assets that are still subject to Income Taxes.
I will revise title to reflect that.

 

[LOL!]

Lots of folks don't pay income taxes, so at least 40% of folks had better vote in the <10% category.

 

[sengsational]

Lots of folks don't pay income taxes, so at least 40% of folks had better vote in the <10% category.

That's not the way I read the question.

I read it as "the amount of money that hasn't passed through the tax gauntlet". It may survive unscathed. It may not.

I've never calculated this number (in a precise manner) before, but it came out to 52%.

The 8606 forms (taxpayer and spouse) had the basis for the traditional IRA's that I was able to subtract out. Annoyingly, my 401k reports in such a way to make it a pain to split out the Roth 401k from the regular 401k, but I adjusted for that. And I have an odd tax advantaged account that has a pretty large basis that will come-out tax-free, so this exercise sheds a bit of light on what's yet to be taxed versus what totals are in tax advantaged accounts.

 

[pixelville]

That's not the way I read the question.

I read it as "the amount of money that hasn't passed through the tax gauntlet". It may survive unscathed. It may not.

Yes. Sengsational's interpretation is correct. I am not asking about your tax rate.

 

[redduck]

Inspired by another thread, I thought it might be worthwhile to see from what part of my assets I still need to give gifts to Uncle Sam.

What percentage of your total net-worth, do you still have to pay tax on? You may not have that number handy. I still don't.

Include in the numerator (for instance)
pre-tax 401k IRA: all
Roth, HSA: 0
after-tax 401k IRA: only earnings, no contributions
Brokerage accts: unrealized capital gains/loss
Banks, CDs: 0
I-bonds: tax-deferred income
Home: capital gains (minus 250K/500K)

...Don't worry about subtracting potential charitable giving, step-up in basis if you plan to pass it on. Those are deductions on your return and would make it complicated.

Might be even more interesting if we took the numerator and divided it by remaining years (life expectancy, say 80 minus current age). Example, if your networth is 2M, of which you still have to pay tax on 900K and you are 50 years old, then
1. 900K/2M = 45%
2. 900K/(80-50) = 30K per year

Good guess. I don't seem to have that number handy. I'll keep looking.

 

[pixelville]

I've never calculated this number (in a precise manner) before, but it came out to 52%.
... Annoyingly, my 401k reports in such a way to make it a pain to split out the Roth 401k from the regular 401k, but I adjusted for that. And I have an odd tax advantaged account that has a pretty large basis that will come-out tax-free, so this exercise sheds a bit of light on what's yet to be taxed versus what totals are in tax advantaged accounts.

I am surprised that your 401k doesn't split out regular/Roth.

If one does the 2nd calculation in the OP for oneself, it will give some more insights on where your tax bracket may be headed, so you can plan better if you wanted to access all your assets and leave nothing behind. Of course, one will have to mentally account for any growth of assets with time, dividends, other income. Although one may have happily been paying 0 taxes so far by tapping assets not subject to taxes!

But if that number is already 60K per year and you get another 30K per year in dividends, interest and another 35K in SS/pension, you better start thinking of higher tax brackets down the line.

Looks like several people have answered >90%. Probably means that their entire net-worth is pre-tax (or they have really massive capital gains)!

 

[pixelville]

Kudos to those who had that number handy or could calculate it fairly easily! You are super-organized and have a good handle on your finances.

I did my calculation. It came to 32%. Not bad.

 

[FIREd]

For me, the calculation was pretty easy because my investments are very basic.

value of pretax 401K and IRAs + unrealized taxable capital gains + tax-deferred interests on I-bonds = ~24% of total assets are still potentially taxable (though I don't expect to pay much in income tax on it).

It was an interesting exercise.

 

[RunningBum]

There are a few of us, not many it seems, who take into account the tax liability of IRAs and such when figuring our net worth. I won't bother with the whole justification again, but it did mean I could look at my "net worth" spreadsheet and see at a glance what my tIRA and unrealized cap gains total is, and divide that into my net worth in my head to see which 10% increment I fit in.

 

[Jerry1]

As I started planning for retirement and thinking about taxes, I realized that I put too much in tax deferred accounts. I'm at 88%. Most all of my savings has been into 401k/IRA's. Now I have to find the most efficient way to get it out of those accounts, but I don't have many levers to pull. Thankfully, reading this site has helped me think about this which is a lot better than not having given it any thought. At a minimum, I've at least learned that I need a HELOC so I can smooth out large purchases. I'm going to ride the 15% bracket so I certainly don't want to have to pull out money at 28% for a large unforeseen purchase.

 

[calmloki]

We have about 5% of NW in double tax free bonds. About the same in value of our homes (2 unmarried people, 2 primary homes). About 40.6% in principal in savings, loans & contracts due us. Pretty much everything else is or will be taxed right and proper - including the interest on the savings, loans, and contracts and the capital gains taxes on any sale of the rental property and taxes on the rents received. Uncle Sam thinks we are A-OK!

 

[RetireAge50]

63%

 

[DrRoy]

I have 45% of my investments in a taxable account, but you only pay tax on realized income, not the total value.

 

[audreyh1]

Inspired by another thread, I thought it might be worthwhile to see from what part of my assets I still need to give gifts to Uncle Sam.

What percentage of your total net-worth, do you still have to pay tax on? You may not have that number handy. I still don't.

Include in the numerator (for instance)
pre-tax 401k IRA: all
Roth, HSA: 0
after-tax 401k IRA: only earnings, no contributions
Brokerage accts: unrealized capital gains/loss
Banks, CDs: 0
I-bonds: tax-deferred income
Home: capital gains (minus 250K/500K)

Inspired by a related thread.
http://www.early-retirement.org/forums/f28/poll-tax-advantage-of-net-worth-84506.html

Don't worry about subtracting potential charitable giving, step-up in basis if you plan to pass it on. Those are deductions on your return and would make it complicated.

Might be even more interesting if we took the numerator and divided it by remaining years (life expectancy, say 80 minus current age). Example, if your networth is 2M, of which you still have to pay tax on 900K and you are 50 years old, then
1. 900K/2M = 45%
2. 900K/(80-50) = 30K per year

You only pay taxes on interest, dividends, distributions, and realized capital gains on taxable accounts (aka as "income" to the IRS). So the real question is what annual taxable income do your non tax-deferred accounts generate.

You can't base it on the value.

Do you mean what unrealized gains in your net worth will you eventually have to pay taxes on? Assuming these aren't passed on to heirs and receive a stepped up basis.

 

[Toocold]

58% here. I do track pre and post tax % on a quarterly basis. I'm surprised at how diverse the results are.

On remaining years, I got 49k per year if I lived up to 80.

 

[Danmar]

About half of my net worth is imbedded cap gains. The tax on this would be about 24%. So my net worth is really about 12% less if tax is taken into account. Concept of step up does not exist in Canada. All my income is subject to tax-divs at 31.7% pension at 48% at the margin. Not bad I guess.

 

[NW-Bound]

...Do you mean what unrealized gains in your net worth will you eventually have to pay taxes on?

Yes, that's what the OP meant, when he mentioned "unrealized capital gains/loss, tax-deferred income from I-bonds", etc...

I've got to sit down to figure this one out. The amount that is yet to be taxed is going to be higher than what another thread asks about the values of tax-advantage accounts, because there are unrealized cap gains in after-tax accounts and interests in I-Bonds to be added to the full values of IRA and 401k.

 

[pb4uski]

About half.... 6% unrealized gains on taxable account investments and the rest tax-deferred accounts.

 

[Alan]

For me, the calculation was pretty easy because my investments are very basic.

value of pretax 401K and IRAs + unrealized taxable capital gains + tax-deferred interests on I-bonds = ~24% of total assets are still potentially taxable (though I don't expect to pay much in income tax on it).

It was an interesting exercise.

Exactly the same situation here, and by coincidence the calculation also comes out to 24%.

 

[pixelville]

Do you mean what unrealized gains in your net worth will you eventually have to pay taxes on? Assuming these aren't passed on to heirs and receive a stepped up basis.

Correct. In the OP, you will see examples of what portion of what types of accounts should be counted in the numerator. Denominator is your NW.
The logic is that a person with net worth 1M may have close to 90% of their net worth in 401k and unrealized capital gains. In which case they have to do a lot more tax planning to access that. OTOH there are those who may have 1M NW but most of it in Roth and bank CDs and their % of NW that still needs to go through the tax man will be negligible.

 

[pixelville]

The amount that is yet to be taxed is going to be higher than what another thread asks about the values of tax-advantage accounts, because there are unrealized cap gains in after-tax accounts and interests in I-Bonds to be added to the full values of IRA and 401k.

You mean in your case? Because for others it may be lower because of Roth.