Tax-Adjusted Asset Allocation Calculator
Your stock and bond split with pre-tax balances reduced by the tax you expect to pay on withdrawal, beside the split your statements show. One way to view an allocation.
Result
Stocks, tax-adjusted: 50%
One way to view an allocation. It depends on a tax rate you guess for years ahead, and many investors use the statement figures instead.
- Stocks, as on your statements
- 57.14%
- After-tax value of all accounts
- $600,000.00Estimate
- After-tax value in stocks
- $300,000.00Estimate
- After-tax value in bonds and other assets
- $300,000.00Estimate
https://calcgallery.com/retirement-planning/tax-adjusted-asset-allocation-calculator/
Results are arithmetic on the returns, rates and horizons you enter, not a forecast and not investment, tax or retirement advice. The site supplies no expected return, inflation rate, contribution limit, tax rate or withdrawal rate. Real returns vary from year to year, and fees, taxes and the order of returns all change the outcome. Check anything that matters with a qualified adviser. Read the full disclaimer
How to use the Tax-Adjusted Asset Allocation Calculator
- Enter the balance of your pre-tax accounts, such as a traditional 401(k) or IRA, and the share of them held in stocks.
- Do the same for any Roth accounts and any taxable brokerage accounts. Leave a group blank if you have none.
- Enter the tax rate you expect to pay on money withdrawn from the pre-tax accounts in retirement.
- Optionally, enter a reduction for the taxable account and a target share in stocks, then compare the two splits.
The formula
after-tax value = pre-tax balance × (1 − expected tax rate) + Roth balance + taxable balance × (1 − taxable reduction)stocks, after tax = the same sum, each balance first multiplied by its share in stockstax-adjusted share in stocks = stocks after tax ÷ after-tax valueThe Bogleheads wiki page “Tax-adjusted asset allocation” gives the method: value a Roth in full, reduce a traditional account by the tax rate expected at retirement, and reduce a taxable account by a smaller estimated amount.
The wiki’s own example
A 401(k) of 4,000 and a Roth of 3,000, with a 25% rate at retirement. With every 401(k) dollar in stocks and every Roth dollar in bonds, the statements read 57% stocks. After tax, the 401(k) is worth 3,000 to its owner, the same as the Roth, so the split is 50/50. Swap the holdings and the statements read 43% stocks, while the after-tax split is still 50/50. Either way a 10% stock gain and a 5% bond gain leave the owner with the same amount after tax, which is the wiki’s argument for the adjustment. Both versions are in the quick reference table.
A view, not a verdict
The wiki page opens with its own warning, “Adjusting your asset allocation based on taxation may have significant unintended consequences,” and it applies here too. The adjustment rests on a tax rate decades away. It also means the numbers on your statements stop matching the allocation you think you hold, which the wiki acknowledges most investors will not work with. Many people keep a target on statement values instead, and the page shows that figure beside the adjusted one so the difference is visible rather than chosen for you.
What the diagram shows
Two bars: the stock and bond split as your statements show it, and the same holdings after the expected tax. The share in stocks is printed in each.
With your numbers
- After-tax value = pre-tax × 75% + Roth in full + taxable × 100% = $600,000.00
- Statement split: $400,000.00 of $700,000.00 in stocks
- Tax-adjusted split: $300,000.00 ÷ $600,000.00 = 50% in stocks
Quick reference
One way to view an allocation. It depends on a tax rate you guess for years ahead, and many investors use the statement figures instead.
| Example | Stocks, tax-adjusted |
|---|---|
| Wiki example: stock in the 401(k), bonds in the Roth, 25% | 50% |
| Wiki example reversed: bonds in the 401(k) | 50% |
| Three accounts, 22% and 5%, target 70% | 76.03% |
| All pre-tax, 60/40, 12% rate | 60% |
| Bonds in the IRA, stocks in taxable, 24% | 66.37% |
| Mostly Roth, 32% on the rest | 76.95% |
Common questions about the Tax-Adjusted Asset Allocation Calculator
- Why would a dollar in a 401(k) count for less than a dollar in a Roth?
- Because income tax is still owed on it. If withdrawals will be taxed at 25%, a 4,000 balance buys what 3,000 in a Roth would. Counting both at face value makes the account holding stocks look larger or smaller than the risk it actually carries for you.
- Is the tax-adjusted figure the correct one?
- It is one way to view it. The Bogleheads wiki page that describes the method opens with a caution that tax rates, brackets and your own preferences change, and notes that in practice most investors do not make these adjustments. The page shows both splits so you can see how much the choice matters for your accounts.
- Which tax rate goes in the rate field?
- The page cannot say, because it depends on your income in retirement and on future law. The wiki argues that the marginal rate at retirement is the one that matters for deciding an allocation, and an average rate for estimating what the accounts are worth. Try both and see how far the split moves.
- What goes in the taxable account reduction?
- An estimate of the tax still to come on gains and dividends in that account, as a share of its value. It is usually smaller than the pre-tax rate, and the wiki notes it depends on how much of the balance is unrealised gain. Leave it blank to count the taxable account in full.
- What does the change to reach the target mean?
- The amount of after-tax stock holdings to add, or remove if negative, to reach the target share. Made inside a Roth it is the same number; made inside pre-tax accounts it is larger, because each pre-tax dollar counts for less after tax.