Consider three people:
- Person A has $1,000,000 in cash.
- Person B has $1,000,000 in an IRA or 401(k).
- Person C has $1,000,000 in a Roth IRA or Roth 401(k).
I assume Person A has a higher net worth than Person B, since Person B has a future tax liability when money is withdrawn from the IRA, and Person A does not have this tax liability. (From a financial perspective, I would certainly prefer to be Person A rather than Person B.)
I assume Person C has a higher net worth than Person A, since earnings on Person C's investments will not be taxed, while earnings on Person A's investments will be taxed. (From a financial perspective, I would certainly prefer to be Person C rather than Person A.)
How should Net Worth for these three people be computed to take future tax liability into account? Or, would these three people really have identical Net Worth?