My major doubt in this question is – How do we know when we have to add the Cost basis addition and when not?
As per my understanding, whenever TDA is there, we don’t have to add Cost basis.
When Taxable account is there and question is talking about Equity capital gain, then we have to add the additional term of Amount*Tax rate*CostBasis.
Is my understanding correct? Do we ever add the additional term in TDA?
- John Kaplan and Anna Forest both have €100,000 each split evenly between a tax deferred account and a taxable account. Kaplan chooses to put stock with an expected return of 7 percent in the tax-deferred account and bonds yielding 4 percent in the taxable account. Forest chooses the reverse, putting stock in the taxable account and bonds in the tax deferred account. When held in taxable account, equity returns will be taxed entirely as deferred capital gains at a 20 percent rate, while interest income is taxed annually at 40 percent. The tax rate applicable to withdrawals from the tax deferred account will be 40 percent. Cost basis is equal to market value on asset held in taxable account.
Kaplan’s and Forest’s Asset Location Tax Profile Kaplan (€) Forest (€) Taxable Account 50,000 bonds 50,000 stock Tax deferred Account 50,000 stock 50,000 bonds Total (Before-tax) 100,000 100,000 What is Kaplan’s after-tax accumulation after 20 years?
- €196,438.
- €220,521.
- €230,521.
in deferred taxation or deferred account , we have the cost basis added. All other cases or account we don’t.
No sir, in TDA calculation, there isn’t addition of the cost basis.
The formula is -> Amount*(1+r)^n*(1-t)
There is no cost basis added in this