A question our support team hears frequently is “Why do you have taxable AND equity as asset types? Aren’t they the same? And tax-deferred vs. retirement plans?” Here are the definitions of each asset type to help you understand why they are listed separately.
Taxable: The return on Taxable type assets is taxed each year and treated as ordinary income. Taxable is appropriate for assets that earn purely ordinary interest – like bonds, CDs, Checking and Savings accounts.
Equity/Other: Equity/Other will track what portion of the return is interest vs. dividends, capital gains and appreciation, and tax the returns accordingly. Assets such as Mutual Funds and Stocks would fall under the Equity/Other category.
Tax Deferred: The return on tax deferred assets will not be taxed until money is withdrawn, and the amount withdrawn is taxed as ordinary income. This asset type is used for non-qualified tax deferred assets like a non-qualified annuity.
Retirement Account: Return on Retirement Account type assets will be treated the same as Tax Deferred, but the Retirement Account type has additional features. Personal contributions to retirement accounts will get picked up as an adjustment to income for tax purposes. Retirement accounts will also be subject to RMDs. This type will be used for any qualified plans, including IRA, 401(k), TSA, etc.
Note: In Easy Money you can find a similar explanation in the “Retirement” Section “Asset Illustrations – C7, and in Golden Years report C1 in the Assets section – “Asset Accounts” to provide to your clients.
