After-Tax Valuation of Tax-Sheltered Assets
DOI:
https://doi.org/10.61190/fsr.v11i3.4737Keywords:
Retirement, Tax-sheltered, ValuationAbstract
Valuing tax-sheltered assets on an after-tax basis has many applications. This paper develops models that accommodate annuitized withdrawals from tax-sheltered accounts, an after-tax mutual fund cost of capital, and some variation in the tax rate over time. Annuitized withdrawals significantly decrease the after-tax value of tax-sheltered accounts compared to a single withdrawal over the same time period. Also, after-tax mutual fund discount rates significantly increase the after-tax cost of capital thereby decreasing after-tax valuations. Examples illustrate that using after-tax values can change investors' effective equity exposure by as much as ten percentage points.
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