Hello all,
I have tried to search the forums but couldn't quite find the answer to this. As I am not entirely familiar with the US tax / pension system, it seems as though the 401(k) and Roth IRA terminology used here are tax-deferred accounts. This means any contribution you do to them is to be substracted from your income, but any payment you receive from those accounts at time of retirment also get taxed as if it was ordinary income?
In the Netherlands we have a very comparable system where you can deposit in a blocked account, and those deposits you can deduct from your income (at approximately 42% income tax). Once you retire, you can turn those deposits into a lifelong annuity payment, and those payments are also counted as income, and are generally taxed at a lower rate than you deposited (I'd expect ~25% on average)
If I look at the networth calculations here on the forum and at other personal finance blogs, the amount in these tax-deferred accounts seems to be counted 100% in the networth calculations. Why is this, as you still have a tax liability on those accounts? For example, if I'd have a retirment account with 200k in it, but expect a 25% tax on average, why would I count the full 200k as part of my networth?
Maybe there is something I am not getting, but with some of the FIRE calculations on here, I don't feel particularly comfortable counting my retirement accounts as 100% to my net worth just yet.
Am I missing something?
Thanks
Scrooge