Modeling withdrawals from a taxable account
DOI:
https://doi.org/10.61190/fsr.v19i1.4964Keywords:
Taxable equity account, Withdrawal, After-tax value, AnnuitizationAbstract
This paper demonstrates how to correctly model withdrawals from a taxable account. The presented framework is largely generalized as it accommodates for varying rates of return. changing tax rates, different time periods. flexible withdrawal amounts. inflation. cost basis. and level of capital gains annual distribution. Closed-form solutions for special cases of constant rate of return. constant annual after-tax withdrawal, constant tax rates and constant share of distributed capital gains as well as the inflation-adjusted after-tax withdrawal are derived and supplemented by illustrative examples. The results have broad applications for the research in financial planning whenever modeling of the withdrawal phase has to be incorporated into the analysis.
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