By William Reichenstein, Ph.D., CFA
Reviewed by Gary W. Silverman, CFP®
Gary Silverman owns a fee-only financial planning firm in Wichita Falls, Texas. He is the editor of the financial newsletter Personal Money Planning, writes the newspaper columns Your Money and Biz2Biz, and hosts the cable talk show, Money Cent$.
You have a traditional IRA worth $1 million. I have a Roth IRA worth $1 million. To many, it looks like we are equals, but if you try to get at your money to buy that retirement dream home, the IRS is going to take 35 percent of it from you. I, on the other hand, get to spend the whole thing. You can come visit. This is an example of the difference taxes make in what an asset is truly worth.
In the book, In the Presence of Taxes: Applications of After-tax Asset Valuations, William Reichenstein, Ph.D., CFA, helps us work through these issues. As the back cover of the book states:
To date, most financial advisers for individual investors have operated as if taxes do not exist. This book offers a better way-a discussion of the after-tax valuation of assets held in one of four savings vehicles: tax-exempt accounts such as Roth IRAs, tax-deferred accounts such as 401(k)s, taxable accounts, and non-qualified tax-deferred annuities. By facing the reality that taxes exist and making reasonable adjustments, financial planners can better prepare their clients for the future, as well as add tangible value for clients through asset allocation and location options.
Reichenstein holds a chair in investment management at Baylor University. To summarize his bio: he knows a lot, he writes a lot, and he teaches a lot.
This book first introduces and explains the topic. Later chapters show how taxes impact the effective asset allocation of a portfolio, discusses where to hold specific asset classes, and the effect on the preferred withdrawal sequence from accounts in retirement.
In the Presence of Taxes is relatively short with around 120 pages of text, making it accessible to the busy adviser. This is important as the concepts presented may profoundly affect the way you counsel your clients. The book will also awaken the inner-geek for those who do portfolio and retirement income modeling.
I found the explanations very clear, well-organized, and used unambiguous examples to illustrate the points. It is an excellent read.
FPA Press (2008)
FPA members: $55