Investors can be taxed on income that is distributed and any gains if a security is sold at a profit. This income can be generated in these ways:
- from securities sold behind the scenes by a fund manager (a short- or long-term capital gain),
- income from a qualified dividend distribution.
- income generated by ordinary interest or unqualified dividend distribution
- income generated when an investor sells a security (a short- or long-term capital gain),
In the four instances above, the percentage of income from Regular Assets (not retirement accounts) generated by (a) if long-term gains and (b) should be entered as dividends and distributions.
Income generated by (c), ordinary interest, need not be entered at all since MaxiFi will assume any earnings not treated as municipal bonds, capital gains, or dividend distributions will be treated as ordinary interest.
Income generated by (d), an investor selling a security (that creates a long-term capital gain) in order to withdraw from regular assets is assigned in MaxiFi in those years when there is a withdraw from regular assets. These withdraws will trigger capital gains tax and MaxiFi will realize these capital gains along with any yet unrealized capital gains on a pro-rata basis when they are withdrawn from the regular asset account.
Using 0% for these fields will result in the higher lifetime tax and is thus the most conservative assumption. Comparing 0% to 100% in an Alternative Profile will reveal the full range of impact of these settings on annual discretionary spending.
See Capital Gains and Qualified Dividends for more details.