Quick question: Do you count tax-deferred income in your total income?

[Amethyst]

Sort of an idle curiosity question.

Naturally, I don't count tax-deferred income within IRAs and 401K when doing taxes. Nevertheless, I found myself wondering whether anybody ever counts their tax-deferred income - perhaps when answering the credit card companies' question about total income?

 

[TheWizard]

No, I do not count increases or decreases due to market value changes in ANY of my accounts as income.
I just completed my year-end summary of 2024 income and updated projections of income for the next few years.

My spreadsheets focus on income subject to taxation but I do compute a gross income which includes 100% of my SS. But my AGI row includes only the 85% of SS subject to Federal taxation.

I also include my RMD for the year from both my 403(b) and my tIRA as part of my AGI. But I will likely do significant QCDs from my tIRA, so my AGI for next year will be less than computed.

Except that I will likely do a small Roth conversion next December to punch my AGI up a bit.
It all works out...

 

[Amethyst]

No, I do not count increases or decreases due to market value changes in ANY of my accounts as income.
I just completed my year-end summary of 2024 income and updated projections of income for the next few years.

My spreadsheets focus on income subject to taxation but I do compute a gross income which includes 100% of my SS. But my AGI row includes only the 85% of SS subject to Federal taxation.

I also include my RMD for the year from both my 403(b) and my tIRA as part of my AGI. But I will likely do significant QCDs from my tIRA, so my AGI for next year will be less than computed.

Except that I will likely do a small Roth conversion next December to punch my AGI up a bit.
It all works out...

What about dividends and capital gains? One of my IRAs had a significant LTG. If it had been taxable, it would have cost me a chunk.

 

[N02L84ER]

I have a spreadsheet that sums the traditional IRA and Roth IRA dividends and capital gains. I am doing this just to see when the Roth conversions cause the Roth "income" to exceed the traditional IRA "income". I do not include these amounts in my reported income.

 

[FLSUnFIRE]

For credit applications I will likely use my income from the past year and would include unrealized gains as part of my income. It is justifiable (I've never seen "income" defined by an application and they usually ask sources and I'd report the sources accurately) and a much more accurate reflection of my means than what is legally reported to the IRS. Of course, I'd only apply after a good year.

Personally, I would define my income as earned only which isn't much and I'm fine with that as I consider myself retired and a spender not an earner. I just don't think about "income" anymore.

 

[Dash man]

I only include realized income that is moved into a checking account. But when a credit card company asks me to update my income, I just make something up. They only use it for marketing or adjusting a credit limit (which I never get close to).

 

[MarieIG]

Well I look at it just to be aware - but I am not sure that I count it toward anything beyond in my own mind, i.e. hey - look at that. Regarding credit card applications, I use a sum less than our actual income.

 

[TheWizard]

What about dividends and capital gains? One of my IRAs had a significant LTG. If it had been taxable, it would have cost me a chunk.

Dividends in my taxable account add to my AGI, correct, so I include those in my projections for future years.

Dividends in my Roth and tax-deferred accounts are not income, so I ignore those.

And I have zero Capital Gains Distributions in my taxable account so nothing to worry about there. If I had CGDs in my Roth or tax-deferred accounts it wouldn't matter.

Beyond that, my credit rating is just fine. I pay my CC BALANCES off twice a month so no problem there.
And I expect to have zero consumer loans for anything for the next thirty years, so no problem there either...

 

[Aerides]

I just make up whatever I want for the occasional CC application, but I think the banks really want taxable income for the purposes of credit/risk assessment, since they can't tap your IRA if collections come a calling.

 

[Gumby]

I just make up whatever I want for the occasional CC application, but I think the banks really want taxable income for the purposes of credit/risk assessment, since they can't tap your IRA if collections come a calling.

If all your taxable income were from social security, it wouldn't help the bank, because they can't garnish social security payments nor execute against an account that contains only money derived from social security payments. You just have to think ahead and not commingle funds from other non-protected sources in that account. Just a helpful tip should you ever get into trouble.

 

[Al18]

I don’t count dividends and CG in a 401K, IRA or Roth IRA. I also don’t count appreciation on my house. None of this is money I spent this year.

 

[TheWizard]

I've not applied for a NEW CC in many years.
I have gotten messages from my two existing CC companies to update my income information so that I can maybe increase my credit limit.

So I give them a dollar number that's actually close to my AGI for the year. They likely have no way of verifying that my income number is anywhere close to accurate. And I have no particular need to increase my credit limit.

So we've both wasted five minutes of our lives that we will never get back...

 

[TheWizard]

I don’t count dividends and CG in a 401K, IRA or Roth IRA. I also don’t count appreciation on my house. None of this is money I spent this year.

Even unrealized Capital Gains in your taxable account aren't income...

 

[rk911]

For us I count any income whether it hits our pocket or is re-invested as part of our net worth, Tax status is irrelevent.

 

[disneysteve]

Money is fungible. Whether we earn $100 in a taxable account or a tax-sheltered account, we've still earned $100 (yes, $100 earned in a Roth is worth more than $100 earned in an account that is or will be taxed - I understand that). Just the other day, I reviewed the year-end statements for all of our investment accounts and totaled up the income generated by those accounts - interest, dividends, and capital gains. I did not distinguish between the taxable brokerage account and the retirement accounts. I just added it all together to see how much we earned for the year. The total came to more than we spent last year which, to me, is confirmation that we're doing okay. If our entire investment portfolio, taxable, tax-deferred, and tax-free, is throwing off more income each year than what we spend, we're in good shape.

Now if you are specifically asking about what to put on a credit application, no, I don't think I'd count the tax-sheltered stuff. In that case, I'd just look at the taxable and liquid accounts.

 

[jollystomper]

I count it for my Quicken data analysis purposes, but not for anything else.

 

[FLSUnFIRE]

Now if you are specifically asking about what to put on a credit application, no, I don't think I'd count the tax-sheltered stuff. In that case, I'd just look at the taxable and liquid accounts.

Why, generally the higher the income the better and it's discretionary anyway? I won't lie but if they don't define the terms I'll set them in the most advantageous to me.

 

[TheWizard]

For us I count any income whether it hits our pocket or is re-invested as part of our net worth, Tax status is irrelevent.

Count it how?
What if we have a down year and your stock funds decline in value by 10%?

Computing your AGI for the year and totaling up the value of your investible assets at year-end are two different things.
Mashing them together for whatever reason makes no sense at all...

 

[audreyh1]

No, I just look at total return.

I don’t “count” any investment income. But the IRS does, and I have to pay taxes on what they consider my income. But I don’t use that number for anything other than taxes and CC applications.

 

[Amethyst]

I have a spreadsheet that sums the traditional IRA and Roth IRA dividends and capital gains. I am doing this just to see when the Roth conversions cause the Roth "income" to exceed the traditional IRA "income". I do not include these amounts in my reported income.

Count it how?
What if we have a down year and your stock funds decline in value by 10%?

Computing your AGI for the year and totaling up the value of your investible assets at year-end are two different things.
Mashing them together for whatever reason makes no sense at all...

I may not have been clear. I'm talking about income, not net worth. If my IRA funds declare a capital gain and reinvest it into more shares, isn't that income? If no CG, I wouldn't own those additional shares.

 

[rk911]

Count it how?
What if we have a down year and your stock funds decline in value by 10%?

Computing your AGI for the year and totaling up the value of your investible assets at year-end are two different things.
Mashing them together for whatever reason makes no sense at all...

The increase or decline in value on our brokerage accounts will show on the monthly statements, the sum total of which + the totals on our monthly bank statements + the current net value of our home and vehicles will be our net worth. In terms of basic monthly income should we ever need to report it I suppose that would be our three pensions and two SS checks.

 

[Amethyst]

Ok. Say I have 10,000 in pension income, 10,000 in taxable mutual fund dividends and capital gains, and 10,000 in capital gains and dividends in the mutual funds that make up my Roth. Never mind what gets reported to the IRS. Is my income 30,000 or only 20,000?

 

[rk911]

Ok. Say I have 10,000 in pension income, 10,000 in taxable mutual fund dividends and capital gains, and 10,000 in capital gains and dividends in the mutual funds that make up my Roth. Never mind what gets reported to the IRS. Is my income 30,000 or only 20,000?

IMO there is no wrong answer to that question. It can be either $10k, 20k or 30k....your choice.

 

[Gumby]

I would count only $10,000 (the pension) as income, but, as rk911 notes, there is no wrong answer.

 

[HI Bill]

My wife likes to point out that gains in any account aren't real $ (realized), unless I sell a stock. Until then, any gains or losses aren't income. They might add to your current net worth (or detract), but they aren't income unless you sell them, IMHO. For purposes of retirement, I consider anything I take from accounts income, whether it be the original invested amount, the gain, dividends, LTCGs, or STCGs, or RMDs. The IRS does too (except that original investment), and you could spend them (less taxes), or you could reinvest. If you reinvest, then for purposes of 'retirement income' for a credit company, they wouldn't count as income, though.