Tax-Adjustment

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Call_Me_Op
Posts: 9970
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Tax-Adjustment

Post by Call_Me_Op »

When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
dbr
Posts: 46659
Joined: Sun Mar 04, 2007 8:50 am

Re: Tax-Adjustment

Post by dbr »

No, I don't.
KlangFool
Posts: 32360
Joined: Sat Oct 11, 2008 12:35 pm

Re: Tax-Adjustment

Post by KlangFool »

OP,

No. I don't.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Topic Author
Call_Me_Op
Posts: 9970
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Tax-Adjustment

Post by Call_Me_Op »

Good - because I don't want to bother and looking for support! :)
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
jebmke
Posts: 26690
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Tax-Adjustment

Post by jebmke »

No, I do not
When you discover that you are riding a dead horse, the best strategy is to dismount.
ThankYouJack
Posts: 5965
Joined: Wed Oct 08, 2014 7:27 pm

Re: Tax-Adjustment

Post by ThankYouJack »

Call_Me_Op wrote: Tue Jun 11, 2024 6:26 am When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
Are you talking about tax-adjusted asset allocation? If so I don't, but it has a surprisingly big impact on my AA if I did
Topic Author
Call_Me_Op
Posts: 9970
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Tax-Adjustment

Post by Call_Me_Op »

ThankYouJack wrote: Tue Jun 11, 2024 7:10 am
Call_Me_Op wrote: Tue Jun 11, 2024 6:26 am When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
Are you talking about tax-adjusted asset allocation? If so I don't, but it has a surprisingly big impact on my AA if I did
Maybe we are talking about the same thing. I am referring to adjusting how much I hold in a particular asset class dependent upon the type of account in which it is held (i.e., taxable, tax-deferred, tax-free). One might do that to account for the different after-tax return afforded by each account type. The challenge, of course, is one's tax rate changes over time and is impossible to predict well into the future. Because of the complication and uncertainty, i am leaning toward not bothering.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
User avatar
Chan_va
Posts: 890
Joined: Wed Dec 05, 2012 6:15 pm

Re: Tax-Adjustment

Post by Chan_va »

I don't bother, but I very roughly mentally deduct 25% from my tax deferred assets when trying to determine my retirement number.
User avatar
retired@50
Posts: 13656
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Tax-Adjustment

Post by retired@50 »

Call_Me_Op wrote: Tue Jun 11, 2024 8:01 am
ThankYouJack wrote: Tue Jun 11, 2024 7:10 am
Call_Me_Op wrote: Tue Jun 11, 2024 6:26 am When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
Are you talking about tax-adjusted asset allocation? If so I don't, but it has a surprisingly big impact on my AA if I did
Maybe we are talking about the same thing. I am referring to adjusting how much I hold in a particular asset class dependent upon the type of account in which it is held (i.e., taxable, tax-deferred, tax-free). One might do that to account for the different after-tax return afforded by each account type. The challenge, of course, is one's tax rate changes over time and is impossible to predict well into the future. Because of the complication and uncertainty, i am leaning toward not bothering.
There is a wiki on it if you want to read about it.
https://www.bogleheads.org/wiki/Tax-adj ... allocation

I don't tax-adjust my AA.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
Longdog
Posts: 2217
Joined: Sun Feb 09, 2014 5:56 pm
Location: Philadelphia

Re: Tax-Adjustment

Post by Longdog »

Call_Me_Op wrote: Tue Jun 11, 2024 6:26 am When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
Based on the responses so far, I guess I'm in the minority. I do tax adjust when relocating asset classes between pre-tax and either Roth or taxable accounts. I use a tax rate of 25% to approximate what my eventual withdrawal marginal tax bracket will be, once RMDs kick in. That's probably low, but it's close enough. The calculation is simple enough. When shifting equities from pre-tax to after-tax, divide after tax amount going into equities by (1-0.25) to get pre-tax amount going from equities to fixed income.
Steve
dbr
Posts: 46659
Joined: Sun Mar 04, 2007 8:50 am

Re: Tax-Adjustment

Post by dbr »

retired@50 wrote: Tue Jun 11, 2024 8:07 am
There is a wiki on it if you want to read about it.
https://www.bogleheads.org/wiki/Tax-adj ... allocation
Yes.

And if you can find the Reichenstein papers through the broken links a read might suggest some rather esoteric rationale for what effect tax adjustment might have on the asset allocation you decide to adopt.
User avatar
retired@50
Posts: 13656
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Tax-Adjustment

Post by retired@50 »

dbr wrote: Tue Jun 11, 2024 8:15 am
retired@50 wrote: Tue Jun 11, 2024 8:07 am
There is a wiki on it if you want to read about it.
https://www.bogleheads.org/wiki/Tax-adj ... allocation
Yes.

And if you can find the Reichenstein papers through the broken links a read might suggest some rather esoteric rationale for what effect tax adjustment might have on the asset allocation you decide to adopt.
Which is why I don't bother...

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
ryman554
Posts: 1662
Joined: Sun Jan 12, 2014 8:44 pm

Re: Tax-Adjustment

Post by ryman554 »

Call_Me_Op wrote: Tue Jun 11, 2024 6:26 am When relocacting assets between a taxable and tax-deferred account, do you bother to "tax adjust?" If so, what ratio of taxable/tax-adjusted do you use and how did you come-up with that ratio?
For AA? No. Money is fungible, and it's relatively easy to rebalance with no tax cost. I may have a different opinion in the decumulation phase...

For deciding when I have enough? Absolutely. I just use a back of the envelope marginal rate calculation to identify/slightly overestimate how much of my stash is going to be taxed so I know roughly my post tax amount and target 25x(+) for that.
privateID
Posts: 845
Joined: Sat Oct 18, 2014 4:59 pm

Re: Tax-Adjustment

Post by privateID »

I do. I see no reason not to because it really is easy to do in my home-grown spreadsheet. I expect to have income to the top of the 12/15% tax bracket in retirement and do have a state tax in NY. Our step tax rate system does make it difficult to come up with a number, but I use a conservative average tax rate of 12%. I think that is better than using 0% which is what I think people are doing when they don't tax-adjust.

I will add, my spreadsheet gives me the ability to view things tax-adjusted or not tax-adjusted. So, I can easily see the difference. I am currently at 51.3% stock when I tax-adjust and 49.7% stock when I do not tax-adjust. So, less than a 2% difference. Maybe double that if used something like 25% tax rate. Is it worth it? Probably not, but so hard for me not to be more precise if I easily can do it.
User avatar
Eagle33
Posts: 2446
Joined: Wed Aug 30, 2017 3:20 pm

Re: Tax-Adjustment

Post by Eagle33 »

I don't either. I consider that the IRS is my colleague that has given me some of his money to invest along with mine. We get alone great by corresponding with each other annually via Form 1040. The IRS to happy to get what ever return on it's money as long as I follow the tax laws.
Post Reply