Taxes against contribution or drawdown against tax related cashflow types

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Joined: Thu Jun 11, 2015 7:16 pm

Taxes against contribution or drawdown against tax related cashflow types

Post by rchow » Sun Sep 01, 2019 2:40 am

Hi Jimr,

In the instance where we enter a number (positive or negative) against a cashflow type (such as taxable savings or tax-deferred savings) where positive is a contribution and negative is a drawdown or withdrawal, does FRP assess tax against that transaction?

I'm trying to model a situation where I would take an advance draw against a tax-related account. For instance, I'd like to harvest 3 years of my annual expenses against taxable savings account or tax-deferred account that is growing at a certain percentage and also modeling the tax impact of this situation. For instance, if my annual expenses are $20K/year, I want to harvest let's say 75K against my taxable account and let's say my investment tax is 15%, then after taxes it's about $63K - which is roughly 3 years worth of my expenses. And then I want to do this again every 3 years until some endpoint. I'm currently assuming that the contributions negative or positive are not automatically assessed the tax - therefore, I'm modeling this as a combo contribution of negative $75K against the taxable account and a contribution of $63K against the taxable account.

Am I correct in approaching it this way?

Thank you.

Posts: 566
Joined: Thu Feb 28, 2008 6:48 pm

Re: Taxes against contribution or drawdown against tax related cashflow types

Post by jimr » Sun Sep 01, 2019 6:55 am

Yes. That sounds right.

The negative savings cash flow "feature" is really sort of a hack that comes with the caveat that the user is responsible for manually handling taxes due and any early withdrawal penalties.

Originally, there was a check in that logic that prevented users from entering negative numbers for those cash flows. Taking the check out was easy and it gave users more flexibility to model stuff like what you're doing. The only trouble is that it's up to the user to manually handle taxes and withdrawal penalties with a separate transaction elsewhere.

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