Mutual Funds: Enter Market Value or After-Tax Value?
Concerning the value of mutual funds entered on the “Assets and Savings | Regular Assets” screen, should the dollar amount be equal to:
(A) the current market value of a mutual fund [i.e., the total cash to be received, if all shares in the fund were sold today]; or
(B) the after-tax value of a mutual fund [i.e., the total cash to be received, if all shares in the fund were sold today, less the estimated taxes to be paid on the appreciation of the fund shares]?
Thank you.
RSS
To restate the question...
Consider this simplified hypothetical situation. A $1,000 investment is made in a mutual fund and, three years later, the shares have now appreciated to $3,000 in total, with no capital gains distributions or dividends. Assuming a 25% effective tax rate, the after-tax value of the investment is currently equal to (a) the initial investment plus (b) the appreciation [$2,000] less (c) the tax due on the appreciation [$2,000 x 0.25 = $500], for a total of $2,500.
Question: In the “Assets and Savings | Regular Assets” screen, should the value of the mutual fund be entered as (a) $3,000 [i.e., the current market value] or (b) $2,500 [i.e., the current after-tax value]?
Thank you.
Please enter the market value. We calculate taxes upon withdraw from retirement accounts. best, Larry
But, if the market value of a mutual fund is entered and taxes are calculated upon withdraw, then ESPlanner will tax again a portion of the value of the fund that has already been taxed, including the initial purchase cost of the fund shares plus reinvested capital gains and distributions. In this way, ESPlanner is being unnecessarily conservative when considering regular assets and retirement accounts in its calculation of consumption – correct?
Please consider enhancing ESPlanner by allowing a user to optionally specify the cost basis of regular and retirement assets.
Thank you.
I was under the impression that the Unrealized Capital Gains took care of this. Or to put it another way, in the hypothetical example above, I would expect to enter $3000 in the Assets screen, and $2000 in the Unrealized Capital Gains box. That's the way I've been using the tool; please let us know if that's not correct!
Jfshelton, your comment was very helpful.
It appears that when values are entered in the “Assumptions | Taxes” window for (a) share of taxable regular asset income received as capital gains or dividends and (b) total unrealized long-term capital gains/losses on regular assets, then the cost basis of regular assets is properly considered by ESPlanner.