Difference between revisions of "User:Assumer/Sandbox"

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Looking for opinions on adding this section to http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement#Explanation_for_the_estimated_order
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==Advantages of tax deferment==
 
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What [http://www.bogleheads.org/w/index.php?title=User:Assumer/Sandbox&oldid=35392 used to be here] has been moved to the [[Tax_Basics#Advantages_of_tax_deferment|tax basics]] page. Please redirect comments and discussion there, or in [http://www.bogleheads.org/forum/viewtopic.php?f=5&t=113521 the forum]. --[[User:Assumer|Assumer]] 21:11, 5 May 2013 (CDT)
===Advantages of tax deferment===
 
It may not be clear why deferring taxes is a good idea, especially if you expect to be in the same tax bracket in the future.
 
 
 
For an example, refer to Table 1. This compares a hypothetical investment of $10,000 in a vehicle (such as a bond or CD) returning 6% annually for 5 years. The investor is assumed to be in the 25% tax bracket both during the investment and the withdrawal stage. A tax-deferred account (such as a non-deductible traditional IRA) waits until the investor withdraws the funds, and then taxes are paid on the entire, cumulative, amount of gains. In a taxable account, the 25% tax is paid each year on the growth of the year.
 
 
 
{| class="wikitable" style="margin: 1em auto 1em auto; text-align:center"
 
|+  Table 1. Tax Deferment
 
|-
 
!rowspan="2" scope="col"|Year !! rowspan="2"|Return !! colspan="4"|Taxable !!rowspan="8" scope="col"|  !! colspan="4"|Tax-Deferred
 
|-
 
! Tax Rate !! Return !! Taxes !! Total !!  Tax Rate !! Return !! Taxes !! Total
 
|-
 
! 0
 
| - || - || - || - || $10,000  || - || - || - || $10,000
 
|-
 
! 1
 
| 6% || 25% || $600 || $150 || $10,450 || - || $600 || - ||$10,600
 
|-
 
! 2
 
| 6% || 25% || $627 || $157 || $10,920 || - || $636 || - || $11,236
 
|-
 
! 3
 
| 6% || 25% || $655 || $164 || $11,412 || - || $674 || - || $11,910
 
|-
 
! 4
 
| 6% || 25% || $685 || $171 || $11,925 || - || $715 || - || $12,625
 
|-
 
! 5
 
| 6% || 25% || $716 || $179 || $12,462 || 25% (of total return) || $757 || $846 || $12,537
 
|}
 
 
 
Start with $10,000. After year 1, you will have $150 less total return after taxes (compared to the non-taxed amount of $10,600). Going into year 5, you will be starting with a higher amount ($12,625) if the taxes were deferred than not ($11,925). In year 5 (the year where the taxes have been deferred ''to'') you will end up with a higher starting amount, which shows that deferring taxes is the best approach.
 
 
 
'''''Editor's note: Did I do these calculations correctly?''''' --[[User:Assumer|Assumer]] 08:14, 26 March 2013 (CDT)
 
 
 
''How do I put more of a "break" between the taxable and tax deferred columns? Like a double vertical bar?'' --[[User:Assumer|Assumer]] 08:14, 26 March 2013 (CDT)
 
:You can get a lot more complicated as shown here: [[wikipedia:Help:Table#Setting borders]], but one simple approach is to insert a non-break space ( ) see [[wikipedia:List of XML and HTML character entity references]]. Tables usually ignore spaces, but non-break spaces force the insertion. Note the column spans the table. --[[User:LadyGeek|LadyGeek]] 21:12, 26 March 2013 (CDT)
 

Latest revision as of 22:15, 5 May 2013

Advantages of tax deferment

What used to be here has been moved to the tax basics page. Please redirect comments and discussion there, or in the forum. --Assumer 21:11, 5 May 2013 (CDT)