Want to know your net worth? Don’t forget this | Personal Finance


Stock Advisor returns from 6/15/21

Dan Caplinger: [From Dave] I am having trouble calculating how to pay taxes on my deferred accounts like traditional IRA. Suggest, do you use a net present value calculation based on benefit requirements? Are you using a 100% withdrawal rate? How do you deal with it?

Dave, I have to say, I think most wealthy calculators can’t handle it at all, which is a mistake and you’re right in taking that into account. I think it should give you a little more flexibility to go about it in simpler ways.

You can get very sophisticated, make estimates of when you are going to withdraw the money. What the tax liability will be. What your disk is likely to be at that point, so what your net tax bill will be. Then apply discount percentages to that.

But I think it’s probably easier to just say, hey, if I have $100,000 in a traditional IRA, my marginal tax bracket is 24%. For wealth calculations, just paste a 24% of $100,000 liability in the tax liabilities column as a reserve for future tax liabilities and call it good.

It could be a missed estimate. But every number you enter there won’t be exactly what it turns out anyway. Just have some access so that you acknowledge that this is there. Then you can save that way if a future scheduling opportunity arises. That’s a net bonus for you, your net worth will increase.