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

[disneysteve]

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?

The pension and taxable CG count as far as taxes are concerned. The Roth doesn’t. But if I was just looking at how much income I had, I’d say 30K.

 

[disneysteve]

My wife likes to point out that gains in any account aren't real $ (realized), unless I sell a stock.

Gains and income are two different things. This thread is about income. If your stock paid a dividend or your mutual fund had a capital gains distribution, that’s income.

 

[jazz4cash]

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.

No because increases Ike that only get counted when you take a distribution. If you took a distribution from an IRA would you count the dividends AND the distribution as income? Probably not! How would you even know if the distribution included any dividend? Increases in deferred accounts count for net worth, not income.

 

[Koolau]

Too long since I've applied for a CC. I'm sure, last time, I included Pension and SS only as I wasn't looking for a huge CC credit capability.

 

[pb4uski]

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?

No, when credit card companies ask, I count what the federal government counts and makes me recognize as income on my tax return, which includes Roth conversions. So it's a bit silly since Roth conversions are moving money from my right pocket to my left pocket, but at least it is a defensible answer using what is shown on the tax return. If they want a better answer they need to ask a more specific question.

 

[Koolau]

No, when credit card companies ask, I count what the federal government counts and makes me recognize as income on my tax return, which includes Roth conversions. So it's a bit silly since Roth conversions are moving money from my right pocket to my left pocket, but at least it is a defensible answer using what is shown on the tax return. If they want a better answer they need to ask a more specific question.

Banks consider those conversions as "income" for the purpose of qualifying Mortgages. Ask me how I know.

 

[Texas Proud]

Another WOW to me...

I actually do not track my income... no matter what the source... I will do what I need for taxes but anything else is just noise IMO.. who cares? I kinda keep track in my head of net worth and watch the ups and downs....

As for the CC questions... I put whatever pops into my head down.. as little as $45K and as high as $100K... there is nothing they can do if I fib about what I make...

 

[mrfeh]

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?

No.

 

[FLSUnFIRE]

Imagining a low/no income person having a large debt forgiven (a taxable event) and using that "income" reported to the IRS to apply for more credit!

 

[big-papa]

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?

Not sure exactly what you're asking here. Tax-deferred income doesn't count for anything except the overall value of your portfolio - until you actually withdraw it. At that point it's taxed as ordinary income, regardless of how it got there.

Cheers.

 

[Alan]

I count the dividends and other distributions in my Roth as income and usually withdraw them all as a distribution but I will start my SS benefits this year so may simply reinvest them in coming years.

My reason for counting the Roth distributions, which are significant, is because I live in the UK and their rules on gifting are different to the USA in that you can gift as much excess income as you want each year without it affecting your inheritance/estate tax. No matter how large any gifts are there is no reporting until you die so each year I update my Inheritance tax spreadsheet showing all sources of income (can't include sales of assets), all non-discretionary spending, and the net excess. All gifts older than 7 years are totally exempt anyway.

 

[donheff]

If it stays in tax differed no. If it comes out, yes unless it's a Roth conversion.

 

[old medic]

Only thing I count towards income is what I have to pay tax on....

 

[frayne]

In my way of thinking it isn't income from a tax deferred account until you take it out. I do use the increases/decreases in values of those accounts in my net worth calculations.

 

[jebmke]

I just make up a number or put in zero -- anything to clear the screen

 

[Al18]

For those of you who want to count gains in tax deferred accounts to credit card companies - consider what you will do in a down market, such as 2022. Would you consider telling your credit card company your income for the year was -$75,000? I think this would hurt your credit rating and they might lower your credit limit to $500.

 

[RunningBum]

My only reason to look at income is for tax reasons and to see if I have enough spending cash available in the foreseeable future. So I only look at my taxable account, where I don't reinvest divs. My IRAs are almost all fixed income, and I reinvest divs. If I need money from it, I sell whatever I need in the account since my sweep account stays near $0 but I've withdrawn very little.

I can't imagine why I would care about "income" in an IRA. I use total return rather than income generated but since I am mostly (but not all) bonds/CDs those are pretty much the same, but I never look at the income the investments have distributed in a year to see how they are doing. Total return all the way. I look at current yield of investments to decide whether to keep or change those.

 

[TheWizard]

Similar to pb4 and RB, I use the IRS definition of income. If it adds to my AGI, then it's income.

Dividends and CGDs in my tax-deferred and Roth accounts are just growth, contributing to my Total Return in those accounts.

And if I were to withdraw $40,000 from my Roth IRA for a large purchase, that does not count as income.
But if I withdrew a similar amount from my tIRA, it certainly is income...

 

[rk911]

Banks consider those conversions as "income" for the purpose of qualifying Mortgages. Ask me how I know.

OK...how do you know?

 

[rk911]

I just make up a number or put in zero -- anything to clear the screen

One of our credit card issuers keeps asking that question when I log on. I just ignore their marketing question and move on.

 

[Trailwalker]

If the credit card company doesn't define income, put down whatever calculation you can reasonably defend. I used taxable income. I don't answer the update questions. Maybe I will in 2026 when taxable income returns to normal.

 

[Koolau]

OK...how do you know?

I LIVED it. Bank said I didn't have enough income for a mortgage. Then they looked at my last 3 1040s and said. "Wait a minute. You have income." I said, "Yeah, but that's just one pocket to the other pocket (tIRA to Roth.)" They said "It's INCOME 'cause you hadda pay income tax on it.!"

 

[pb4uski]

^^^ Yes, talk about form over substance. The other "trick" I have heard is that before applying you set up a regular monthly withdrawal from tIRA to your checking account and they count that as income for qualifying for a mortgage even though you could turn it off the day after the mortgage is funded... just like you could lose or quit your job the day after the mortgage is funded.

Funny story. I refinanced about the same time that I was retiring. I has stopped working at the end of December but was still on payroll "on vacation" for the month of January. In mid January, our refinancing went through and my employer provided a verification of employment even though I had resigned with an effective date a couple weeks later. Strange.

 

[jebmke]

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?

Oddly enough, once a year I do an exercise where I total all income including that, were it not for location would be taxable income (interest, divs, pension ...) and then calculate an effective tax rate based on my tax liability. I have no idea why I do this -- it is truly useless info. But not hard to do so ....

 

[GenXguy]

I have no SS income or Roth conversions. I just count all my taxable income, which is my MAGI income for ACA purposes in my case.

I'm not touching my existing Roth, but I wouldn't count that as income if I started taking distributions.

If I was pulling from my non-qualified annuities, I would only count the taxable part as income.