Thread's been dormant for awhile, so apologies for reviving it. First, thanks for this topic and your presentation - it's very clear, and makes me think about this topic in a new way. Much appreciated!A5 is the most important calculation here. For every dollar of gains in the taxable account, the IRS will take the dividend tax (B2*E2) every year, and that cost compounds for F2 years. Then, when you sell, the unrealized gains will be taxed; they are a fraction C2/(B2*(1-E2)+C2) of the total gains, since you reinvest only the after-tax dividend B2*(1-E2), and the entire unrealized gains. (If you pay the tax from some other source, that is still money that you would have otherwise invested.) Thus it also affects the risk of holding stock in the taxable account, as the IRS will give back that share of any losses or take that share of any gains.
I've got one possible nit (or more likely point of confusion):
The nit (or confusion): I get the logic behind A5, and the reduction in risk from holding stock in the taxable account. What I don't follow is why D8 can be used for the starting Roth balance in both Bonds in Roth/Stocks in Roth scenario. For example, if the stock tax on gains is 20%, then I totally agree that 10000 of stocks in Taxable has the same risk as 8000 in Roth. But that doesn't seem to imply that these two portfolios have the same risk;
10000 stocks in Taxable, 8000 bonds in Roth
8000 stocks in Roth, 10000 bonds in Taxable
Yes, the risk-from-stocks is the same, but the risk-from-bonds isn't - the taxation is different, so the change in risk is different. Did I miss something?
Statistics: Posted by brightlightstonight — Thu Aug 29, 2024 3:21 pm — Replies 25 — Views 4133