Description

What it does

This financial calculator helps you make an optimized financial decision for a specific use case: you want to change from one investment to another.

It assumes you currently have an existing investment, such as stocks, bonds, or an annuity, that you're considering divesting from so that you may reinvest the money into another investment with better returns. From here on out, these investments will be referred to as old and new.

You have a choice with how fast you sell the old and reinvest into the new. You could convert it all in a single year, or you could spread it out over multiple years, converting a portion each year. The problem with converting it all in a single year is that you may create a large tax bill that year. Now, generally you want to avoid or minimize taxes you pay, and generally you'll pay less taxes by slowly converting from the old to new investment over multiple years, but that doesn't necessarily mean slowly converting over multiple years would lead to the highest net worth for you. Maximizing your net worth is the ultimate goal in these calculations.

Sometimes it's better to convert quickly and pay any additional taxes because the new investment offers significantly better returns. It's possible the additional yearly returns more than outweighs any additional taxes paid, making it optimal to get move into the new investment either quickly, or even immediately. Of course, there's also the question of how quickly is best.

So, this calculator's purpose is to help you analyze and pick a more optimal strategy - how fast to convert from old to new. You can enter some parameters to help get the simulation close to your own personal situation regarding taxes and investment returns.

So, this calculator's purpose is to help you analyze and pick a more optimal strategy - how fast to convert from old to new. It does this by crunching the numbers and running simulations to see how fast your net worth grows while considering the growth rates of your investments, and that taxes you'll pay each year.

Modeling Methodology

Sales of your current investment are assumed to be long term capital gains.
Your annual income, deductions, and tax tables are only used to compute your capital gains tax on the sale of your current investment - no other tax is computed.
Data will be computed and displayed to you in a tabular format. Each row in the table represents a data snapshot of various balances and amounts for that year.
Two tables will be shown: one which models a scenario where you convert the entire thing in a single year, and the other table showing the multi-year conversion results. The result that provides the larger $ is the better choice.
Assumes the simulation starts on Jan 1st of some year.
Assumes your new investment doesn't generate any taxable events, such as dividends or distributions. It's ok if it does, but this calc doesn't model that aspect. If your new investment pays significant dividends, then you may want to slightly reduce the CAGR of the new investment to compensate for the taxes you would be paying that this calc isn't aware of.
A single Old to New conversion sale + purchase is done per year. The yearly sale of the Old Investment is done immediately at the start of the year, and the New Investment is purchased with it, after subtracting taxes. The taxes are paid immediately, even though in reality you could probably wait until the next year before paying them.

How to use it

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Columns

The "*Current*Balance" columns represent what you would have on the first day of the year.
The "Yearly*InvestmentGain" columns represent what you made in that year, at the end of the year.
Taxes on your Annual Income are not computed into the simulation. However, your annual income is used to help determine your marginal tax rates that are applied to your investment gains.

Calculator

Configuration Params

To help you understand, the form will be prefilled with values that model the following example scenario:

You bought $10,000 worth of shares in a stock over 1 year ago. The current market value of the shares is $100,000 and it is expected to appreciate at 4% per year for future years. Each year you will sell $30,000 worth of shares. You'll set aside some of the 30k for cap gains tax, and use the remainder to buy shares in a new stock. The new stock is expected to appreciate at 6% per year. You'll repeat this "sell some old shares, use money to buy some new shares" activity annually until you've sold all of your original stock. Your personal income from your 9-5 job is $15,000 a year. You live in California and will use the standard deduction and tax tables for 2022.

Current Investment Value

Current Investment Tax Basis

Current Investment CAGR

New Investment CAGR

Current Investment Conversion Per Year

Annual Income

Federal Tax Brackets Tax Year Table

State Tax Brackets Tax Year Table

Long Term Capital Gains Tax Brackets Tax Year Table

Medicare FICA Taxes Tax Year Table

Medicare Surtax (NIIT) Taxes Tax Year Table

Social Security FICA Taxes Tax Year Table

Federal Deduction

State Deduction

Calculation Results

Summary

Using your inputs, the "Gradual Withdrawal" simulation fully converted out of the old and into the new investment by the start of year ?. At that time, the Gradual simulation calculated a net worth of $? vs $? for the Immediate conversion simulation. So, ?.

But, consider changing the inputs a bit to see how the results are affected. Some of the inputs are hard to predict for future years, and you may find it useful to experiment a bit here. In particular, pick a year after the conversion of old is fully complete, and note the value of the "CombinedValue" column at that year (CombinedValue = total current value of all assets). Now, make a change in your inputs, such as the "Conversion Per Year" field, recalculate, and compare the "CombinedValue" for the chosen year. By comparing the value for the same year to compare different form inputs, you can compare performance on an apples to apples basis. Try increasing and/or decreasing the "Conversion Per Year" field until you find the highest value for the fixed year you choose, which will tell you the optimal rate to convert from old to new.

Year Conversion Completed	?
Net Worth (at year ?) Gradual Convert Sim	$?
Net Worth (at year ?) Immediate Convert Sim	$?
Best Strategy	?

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