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Werewolfdad t1_jec0282 wrote

Reply to comment by ToothPicker2 in Pre-tax assets messing up my asset allocation percentages.. pls help! by ToothPicker2

No because you can manage your tax rate and tax rates change

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ToothPicker2 OP t1_jec04a2 wrote

What does that mean?

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Werewolfdad t1_jec09gd wrote

It means you’re wasting your time

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ToothPicker2 OP t1_jec2pdf wrote

Someone yesterday said: something to keep in mind is that after-tax and before-tax dollars are not equal. If it is a traditional 401k then there are still income taxes to be paid. That might change what the actual split is when compare on an after tax basis.

Which is why I asked.

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Werewolfdad t1_jec37zn wrote

Sure but I don’t see how that relates to asset allocation

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ToothPicker2 OP t1_jed5nqs wrote

Isn’t split and asset allocation the same thing? Or am I missing something?

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Werewolfdad t1_jed5xiu wrote

No

Asset allocation is what sort of assets you own.

I don’t actually understand what you’re asking for at this point

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ToothPicker2 OP t1_jed6pvj wrote

Ok let me explain in the most basic way:

Assume I have $100 to invest and I split it between VTI and BND in a 60:40 ratio ($60 in VTI and $40 in BND), so my asset allocation is 60:40.

Now, assume the VTI sits in a tax-advantaged account like a 401k or IRA, and the $40 of BND is in a taxable brokerage, so that $60 is actually pre-tax dollars, while the $40 is post-tax dollars.

If I assume my tax rate in retirement would be 10%, the $60 of VT is effectively $54 of assets I own.

So my actual asset allocation is $54:$40 or 57:43.

That’s what I’m trying to say.

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Werewolfdad t1_jed82oe wrote

Read the tax efficient asset allocation at the bottom of the following link

Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics

> So my actual asset allocation is $54:$40 or 57:43.

And this is wrong. It’s not. A traditional account doesn’t get a discount.

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ToothPicker2 OP t1_jed8oc7 wrote

I’m aware about tax efficient asset allocation, where bonds must go into tax advantaged accounts rather than a brokerage, etc etc.. that’s not what I’m asking.

A traditional IRA is pre tax dollars, right? So when we calculate the total ratio, all the assets must be considered post-tax right? So how’s it wrong?

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Werewolfdad t1_jedaen4 wrote

> A traditional IRA is pre tax dollars, right? So when we calculate the total ratio, all the assets must be considered post-tax right? So how’s it wrong?

Because it’s not a consideration because he can withdraw it all and have a large tax liability or withdraw none of it and have no tax liability.

Plus he doesn’t have enough money to put this much effort into a few percentage points of assets or way or the other

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