Practice exam volume 1 page 83, the cash reserve calculation.
The subject is taxable at 15%, the cash reserve equal to half of the total year liv exp and medical care for Joe’s father.
I assume the expenses is after tax, but the office answer did not consider tax effect.
anyone please give me a clue on this?
Another confusion on liquidation needs, during the process to calculate liquidation needs, tax is also an issue. Should I consider tax effect in calculation liquidation needs in individual IPS?
Thanks a lot!
I found this as well… it depends from year to year in the mocks as well.
I came across this as well. IMO, if a taxable client has a liquidity need of $125,000/yr from his/her portfolio, then I would say:
“Client has a liquidity need of $125,000/yr after taxes to pay for living expenses – adjusted for inflation – each year during retirement.”
…but if $200,000 needs to be withdrawn from the account before retirement (say for educational purposes or a down payment on a home), then be sure to remove the following amount from the asset base: $200,000 / (1 - tax rate) …before calculating the required return from the portfolio.
Hope that makes sense.
Is there a hint of tax exempt bonds in the portfolio - then I guess you may not consider it