In this series of short articles, The Skilled Investor compares the functionality of the Quicken and VeriPlan financial lifecycle planners. At the bottom of this article you will find links to the previous topic and the next topic. A link is also provided that returns you to the main topic listing of this comparison.*

VeriPlan Personal Financial Lifecycle Planner

VeriPlan automatically applies long-term capital gains taxes rates on qualified dividends and asset gains related on capital distributions and asset withdrawals net of any accumulated tax basis for your stock and equity assets. VeriPlan automatically applies the 5% or 15% federal long-term capital gains tax rate depending upon your other income. VeriPlan also automatically includes state and local personal income tax rates in these calculations.  (See:  VeriPlan projects your US federal state and local lifecycle taxes)

Cash and bond distributions are taxed at federal, state, and local ordinary income tax rates. Property, real estate, and other assets are assumed to be held for the term of the projection. Therefore, their projected values will reflect cumulative real dollar appreciation net of any investment costs. These property values will be gross with respect to future capital gains taxes, which might be paid, deferred, or avoided, if the asset is disposed of at some point in the future. 

For each of your asset holdings, you can provide your current asset tax basis. Over your lifecycle projections, VeriPlan will automatically track your cumulative tax basis (initial tax basis plus changes over time) for each asset separately. Then, VeriPlan will automatically combine your tax basis by asset class and reduce projected taxes as appropriate on distributions and withdrawals from your cash, bond, and stock assets.

Quicken Retirement Planner

The Quicken Retirement Planner does not take into account capital gains tax rates on investment assets. Instead, it simply uses your before-retirement and after-retirement average total tax rate assumptions and taxes all investment distributions. Concerning real property assets, the Quicken Retirement Planner does allow you to enter a different tax rate for future gains on the sale of real estate assets on a one-by-one basis. 

However, you should check independently about an appropriate combined federal and state capital gains tax rate to use. For example, the 2007 Quicken Retirement Planner's "Warnings" under "Check for Problems" issues a hint that "the 1999 capital gains tax rate is 20%." Clearly, Quicken's advice is more than a bit dated. In 2007, the federal long-term capital gains tax rate is 15% in most situations, and there have been many other important tax law changes since then. For example, federal long-term capital gains tax rate could be 5% or 15% depending upon taxable income levels. Furthermore, any state taxes on capital gains should also be taken into account, when you estimate a total long-term capital gains rate.

The Quicken Retirement Planner does take into account the original tax basis of your assets, because it applies an average tax rate to all asset gains. However, it does not take into account any changes in the tax basis of your assets caused, for example, by ongoing investment expenses.

* Lawrence Russell and Company is the publisher of The Skilled Investor and the developer of VeriPlan. The Skilled Investor has made an attempt to characterize factually the functionality of both the Quicken Retirement Planner and VeriPlan.

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