Hello!
I am attempting to model the sale of my home and have tried entering the proceeds as both Misc Income with a 0% Taxable Percent, as well as Taxable Savings. However, in both cases the amount I entered seems to be taxed. For example, under Additional Inputs, if I enter $500,000 as the Annual Amount (set to one year), the Detailed View shows "New Taxable Inv" as $444,244. My home proceeds should be tax-free so I'm not sure to have the calculator enter the full $500k.
I also notice a similar issue with other investments under Additional Inputs. For example, let's say on the main page (Summary View) I enter $34,000 as Tax Free Annual Savings. On the Detailed View I see $34k under "New Tax Free Inv". But if under Additional Inputs I enter $3,000 to my Tax Free Savings from 50-60, in the first year the amount invested shows as $35,922 instead of the expected $37,000.
I'm sure I'm doing something wrong, or not thinking about this properly, but I can't figure it out.
Thank you for your help!
Home Sale Showing as Taxed
Re: Home Sale Showing as Taxed
By any chance, are you selecting the "No COLA" option for inflation, instead of "track inflation"?
The year-to-year amounts shown in the detailed view are in present value (2020) dollars. That means that if an amount is exactly keeping up with inflation, it will stay the same from year to year. If an amount is loosing purchasing power to inflation each year, it will show as decreasing from year to year, reflecting the loss of real value over time.
The year-to-year amounts shown in the detailed view are in present value (2020) dollars. That means that if an amount is exactly keeping up with inflation, it will stay the same from year to year. If an amount is loosing purchasing power to inflation each year, it will show as decreasing from year to year, reflecting the loss of real value over time.
Re: Home Sale Showing as Taxed
I was laying in bed this morning wondering if it had something to do with inflation. You are, of course, correct! Changing them to "Track Inflation" did the trick. I had them set to "No COLA" thinking they would consider inflation but not an additional COLA.
Related Question - I have a pension that doesn't track inflation but instead increases at a flat 2% per year. Should I choose "Fixed COLA" and enter 2%?
Thanks!
Related Question - I have a pension that doesn't track inflation but instead increases at a flat 2% per year. Should I choose "Fixed COLA" and enter 2%?
Thanks!
Re: Home Sale Showing as Taxed
Generally yes. The key is to know if the starting amount tracks inflation or not. If the starting amount tracks inflation, you'd use the "track then fixed" option instead of just fixed.
In other words, during the period before the pension payments start, does the starting amount track inflation, is it fixed, or is it flat?
In other words, during the period before the pension payments start, does the starting amount track inflation, is it fixed, or is it flat?
Re: Home Sale Showing as Taxed
I'm entering the pension amount in today's dollars even though it won't pay out for a few years. Does this mean I've already "tracked inflation" or should I choose "track then fixed"?
Re: Home Sale Showing as Taxed
The answer depends on how the payment will be adjusted between now and the time it starts. Is the payment amount fixed in nominal dollars or will it be adjusted between now and the time it starts?
Re: Home Sale Showing as Taxed
For sake of example, say I'm currently 50 and want to retire at 60. If I were retiring at 60 today my pension would be $100k, increasing by a fixed 2% of the original base value every year (+$2k, not compounded). Is this "Track then Fixed"?
Re: Home Sale Showing as Taxed
From what you describe it sounds like "track then fixed" would be the way to go.
Again, the key is whether you expect that annual $100k payment amount to increase to cover inflation each year between now and the year you plan to retire. From what you describe, it sounds like this is the way your pension works, which is pretty typical I think.
With the "Track then fixed" option, you're telling the planner that when you retire at 60, the actual nominal payment amount will likely be more than $100k (for example), but it will have the same purchasing power that $100k has today. Then once the payment starts, the nominal amount will increase each year by a fixed percent regardless of what's happening with inflation.
As an example, if you set inflation at 3% and the pension is track then fixed at 2%, if you look in the year-by-year detailed view tab, you'll see the amount of the pension start at around $100k, but then start loosing 1% of its value each year. The decrease reflects the fact that under this scenario, even though the nominal pension amount will be increasing by 2% each year, the real value is decreasing and the pension payment is losing a little bit of purchasing power each year.
Again, the key is whether you expect that annual $100k payment amount to increase to cover inflation each year between now and the year you plan to retire. From what you describe, it sounds like this is the way your pension works, which is pretty typical I think.
With the "Track then fixed" option, you're telling the planner that when you retire at 60, the actual nominal payment amount will likely be more than $100k (for example), but it will have the same purchasing power that $100k has today. Then once the payment starts, the nominal amount will increase each year by a fixed percent regardless of what's happening with inflation.
As an example, if you set inflation at 3% and the pension is track then fixed at 2%, if you look in the year-by-year detailed view tab, you'll see the amount of the pension start at around $100k, but then start loosing 1% of its value each year. The decrease reflects the fact that under this scenario, even though the nominal pension amount will be increasing by 2% each year, the real value is decreasing and the pension payment is losing a little bit of purchasing power each year.
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