Modeling Taxes on Taxes?

[kleinfelter]

Does FRP model taxes on withdrawals to pay taxes?

e.g. If 100% of my assets were in tax-deferred accounts, and I entered no retirement income and Annual Retirement Spending of $100,000 and a tax rate of 20%, would FRP model withdrawing $100,000 or would it model withdrawing $120,000?

[jimr]

It actually needs to withdraw more than $120k in order to cover the taxes on the $20k extra withdrawal needed to cover the taxes due on the $100k - and so on, and so on...

You can see this in the detailed view table if you select the "show more details" radio button, then right-click on any column header and select "show all columns."

This adds a bunch more columns including one that shows the actual amount withdrawn each year grossed up to cover taxes.

[jeremy]

the investment and income tax rate inputs should be based on effective tax rate and not marginal tax rate, correct?

[jimr]

Yes. That's correct. Also, in addition to federal taxes, the rates should cover any state or local income taxes you expect to have to pay.