Realized Pre-Tax Income

[scfr]

Can any of you bean counters, CFPs, or other technical experts out there give me a clear definition of "Realized Pre-Tax Income"? I saw an interesting formula for calculating what your net worth should be (to see if your retirement savings are on track) that included using your "Realized Pre-Tax Income" and I can't find a good defintion anywhere.

Is it toal income (including interest, capital gains, etc)? Is it AGI? Do you add back in your Tax-Deferred retirement savings (IRA, etc)? For us self-employed folks, what about the deductions we take (one-half of self-employment tax, etc)?

Thanks to anyone who can help!

[kv968]

I would say it's your gross income not your AGI. I wouldn't include any interest, capital gains, taxes or IRA contributions. Sounds like they want a figure that is exactly what you make just from working (ie. $10/hr = $400/wk = $20800/yr). That's what I would take it mean.

[scfr]

Nobody knows? Shoot ...

Well, for what it's worth, this is the formula:

[Here's another way to figure out where you stand: Take your age and multiply it by your realized pre-tax annual household income from all sources except inheritances. Divide by 10. Subtract any inherited wealth. This is what net worth should be.]

When they say income from all sources it sounds like you should include interest, etc. But I still wish I could find a definitive explanation of "realized pre-tax income."

[kv968]

I didn't realize it was for trying to figure out what your net worth should be. I must of mentally skipped over that part. In that case, "pre-tax realized income" would mean any income that you currently "realize" or live on (for lack of a better term) before taxes. For example, I just live on/"realize" my salary so I would just use my gross pay. If you were living on/"realizing" your salary plus taking interest or dividend payouts out of an account, you would use your gross salary plus the interest or dividends you took out of your account before you paid taxes on it.

In other words, if you made $1000 in dividends and $40k/yr working but had all the dividends reinvested then you'd use $40k. If however you regularly take the $1000 of dividends as a cash payment then you'd use $41k disregarding the taxes you paid on the dividends.

You wouldn't include all of the investments (IRA's, mutual funds, MMA's, etc...) that you don't touch because that's the total you're trying to see if you're on target with when figuring out your net worth . Make sense?

[vsjhoc]

"Realized pre-tax income" means I realized that I'm not earning enough.

[kv968]

Originally Posted by vsjhoc

"Realized pre-tax income" means I realized that I'm not earning enough.

Then I seem to have a lot of that type of income too

[vsjhoc]

I went to a financial planner a long time ago. He took all the info about my retirement savings, plugged it into a computer, and spit out a chart. He said to me, "Well, what do you think?" I said, "I think I'm going to have to die young."