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Psychology of Money - Portfolio Value and Taxes Owed
Posted on 7/30/25 at 9:47 am
Posted on 7/30/25 at 9:47 am
If you had to choose one scenario, which one do you choose?
Scenario 1
You owe US Fed Taxes = $100,000 MFJ or $125,000 single
Scenario 2
You owe US Fed Taxes = $70,000 MFJ or $90,000 single
Ok, easy part over! Now the portfolio value that drives the tax consequences.
For example, assume high confidence that scenario decisions yield the following:
Scenario 1 = $10,000,000 portfolio value
Scenario 2 = $ 8,700,000 portfolio value
Do you change your answer? Scenario 1 has $1,300,000 greater portfolio value.
Only one of these scenarios will be the outcome. Either:
1 - $10M and owe $100k or $125k taxes
Or
2 - $8.7M and owe $70k or $90k taxes
Once you take a decision and are in one of these 2 scenarios:
1. Do you consider the scenarios that led to your portfolio value and taxes owed? Or is it…it is what it is…at that point, so to speak? Can you see the $1.3M difference anymore?
2. Do you have a bias towards the taxes owed?
3. Do you have a bias towards after tax returns?
Scenario 1
You owe US Fed Taxes = $100,000 MFJ or $125,000 single
Scenario 2
You owe US Fed Taxes = $70,000 MFJ or $90,000 single
Ok, easy part over! Now the portfolio value that drives the tax consequences.
For example, assume high confidence that scenario decisions yield the following:
Scenario 1 = $10,000,000 portfolio value
Scenario 2 = $ 8,700,000 portfolio value
Do you change your answer? Scenario 1 has $1,300,000 greater portfolio value.
Only one of these scenarios will be the outcome. Either:
1 - $10M and owe $100k or $125k taxes
Or
2 - $8.7M and owe $70k or $90k taxes
Once you take a decision and are in one of these 2 scenarios:
1. Do you consider the scenarios that led to your portfolio value and taxes owed? Or is it…it is what it is…at that point, so to speak? Can you see the $1.3M difference anymore?
2. Do you have a bias towards the taxes owed?
3. Do you have a bias towards after tax returns?
8
Posted on 7/30/25 at 9:50 am to Artificial Ignorance
Nobody, and I mean nobody, wants to pay more in taxes. But isn't that the catch?
Once had a client early in my career complain he had to cut an additional check for $185,000 to the IRS in April... I explained to him that I hadn't even made that much TOTAL yet and he should stop his bitching.
Once had a client early in my career complain he had to cut an additional check for $185,000 to the IRS in April... I explained to him that I hadn't even made that much TOTAL yet and he should stop his bitching.
Posted on 7/30/25 at 10:08 am to Artificial Ignorance
quote:
1 - $10M and owe $100k or $125k taxes
Or
2 - $8.7M and owe $70k or $90k taxes
Maybe I'm retarded but how is this even a question?
$10,000,000 - $125,000 = $9,875,000
$8,700,000 - $90,000 = $8,610,000
Posted on 7/30/25 at 10:16 am to MrSpock
Give me more money and the correct amount of associated taxes.
Posted on 7/30/25 at 12:37 pm to Artificial Ignorance
This is dumb.
Posted on 7/30/25 at 12:57 pm to MrSpock
In my experience, many people only look at taxes due and wish to minimize them vs focusing on their after tax returns.
Meaning, when writing that future check for $100k of taxes, do you consider the scenario path you took that created $1,300,000 more value for you, or do you strictly look at the taxes at that point?
ie, good news! Your taxes are higher.
Would think reasonable people would not forego $1,300,000 portfolio value to lower taxes. However, how quickly do reasonable people forget scenario 2 when writing that future tax check?
Meaning, when writing that future check for $100k of taxes, do you consider the scenario path you took that created $1,300,000 more value for you, or do you strictly look at the taxes at that point?
ie, good news! Your taxes are higher.
Would think reasonable people would not forego $1,300,000 portfolio value to lower taxes. However, how quickly do reasonable people forget scenario 2 when writing that future tax check?
This post was edited on 7/30/25 at 1:01 pm
Posted on 7/30/25 at 1:20 pm to Artificial Ignorance
Either you are a whole lot smarter than me, or a whole lot dumber. You always want more money. Pay the tax. You still have more making more.
Posted on 7/30/25 at 2:11 pm to RoyalWe
quote:
This is dumb.
Now apply the concept to RMD reduction strategy.
My math says I can create $1.3M more portfolio value in next 20yrs, at which time 1st RMD is due, by not applying RMD reduction strategy even with growth of Roth conversions.
No RMD reduction Portfolio value is $1.3M higher RMD reduction Portfolio (tax deferred + Roth) over same 20yrs.
At which time, PV of increased taxes (for est remaining 15 yrs of life) for not reducing due RMD are:
MFJ = $250k
Single = $350k
$1.3M > either of those.
Every CFP I know says to max RMD reduction.
My after tax returns appears to significantly higher without RMD reduction.
Are they only focused on tax? I must be missing something.
I am not considering inheritance. Would there be > $1M inheritance tax?
This post was edited on 7/30/25 at 2:24 pm
Posted on 7/30/25 at 3:06 pm to Artificial Ignorance
You're making my head hurt with how shittily you've written this out. These two posts are not the same.
Posted on 7/30/25 at 3:14 pm to Artificial Ignorance
Get trumps, bidens, pelosi, etc….. type CPA and don’t worry about it unless you get indicted and then hopefully you used and offshore bank
Posted on 7/30/25 at 6:48 pm to UpstairsComputer
quote:
shittily
quote:
you've written this out.
Cool with critique / feedback.
Most impressed with ironic pentameter, adverb and phrasing.
Posted on 7/30/25 at 7:48 pm to Artificial Ignorance
The way you presented the scenario was convoluted.
I think something is off w your assumptions and math. Assuming same rate of return and tax rate 2 scenarios should be equal.
But in reality, tax bracket likely goes up w larger RMDs and widow penalty (filing single). Also have to account for tax on SS benefits, IRMAA, future tax increases etc...
For this "RMD reduction strategy" did you model paying tax on conversion from other funds and convert entire amount? If you pay tax from the retirement account that's going to reduce Roth balance and growth obviously.
Typically, conversions to reduce RMDs are done in low tax years earlier in retirement. Are you perhaps running this scenario w conversions layered on top of earned income while still in higher bracket?
Approx balances, income and assumptions would really help make sense of it. You can't expect anyone to unravel the scenario with just the results you shared
I think something is off w your assumptions and math. Assuming same rate of return and tax rate 2 scenarios should be equal.
But in reality, tax bracket likely goes up w larger RMDs and widow penalty (filing single). Also have to account for tax on SS benefits, IRMAA, future tax increases etc...
For this "RMD reduction strategy" did you model paying tax on conversion from other funds and convert entire amount? If you pay tax from the retirement account that's going to reduce Roth balance and growth obviously.
Typically, conversions to reduce RMDs are done in low tax years earlier in retirement. Are you perhaps running this scenario w conversions layered on top of earned income while still in higher bracket?
Approx balances, income and assumptions would really help make sense of it. You can't expect anyone to unravel the scenario with just the results you shared
This post was edited on 7/30/25 at 9:15 pm
Posted on 7/30/25 at 8:33 pm to Artificial Ignorance
Q3 Advisors are happy to take your $10K and create a full conversion plan for you that explains what you will save (or not).
Posted on 7/30/25 at 9:28 pm to Artificial Ignorance
A dollar made is superior to 33 cents of taxes owed. I never consider the tax consequences of a profit based on taxes owed, and I'm a CPA.
Now. once I have the profit, I'll use all legal means necessary to reduce the tax bill.
Now. once I have the profit, I'll use all legal means necessary to reduce the tax bill.
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