10% Tithe versus 1% Account Fee. Which costs more?

[PhysicianOnFIRE]

At a reader's request, I explored the financial impact of a tithe (donation of 10% of paychecks). Not wanting to dissuade people from being charitable, I also compared a tithe to brokerage fees of 1% to 2% to see which would cost more over the long run. Having performed similar exercises in Excel, I was not amazed by the results, but the calculations do illustrate the huge cost of "small" fees over the long run. Here is that comparison.

Best,

-PoF

[ticker]

Interesting exercise. Thanks for putting it together.  One quibble:  I would guess that for a lot of people the standard deduction is greater than their itemized deduction before charitable giving is included.  In that case, any charitable giving dollars given up to the standard deduction amount don't receive an actual deduction.  It is only those dollars given beyond the standard deduction amount that really benefit the taxpayer.  So, I suspect the effective tax benefit of tithing may be less for a lot of people than you have calculated.

I'm also curious what percentage of people tithe gross vs net income.  We've always done gross and I had never really considered doing it the other way.  All the more reason for us to keep investment fees low, I guess!

Thanks again for the link.

[PhysicianOnFIRE]

ticker wrote:

Interesting exercise. Thanks for putting it together.  One quibble:  I would guess that for a lot of people the standard deduction is greater than their itemized deduction before charitable giving is included.  In that case, any charitable giving dollars given up to the standard deduction amount don’t receive an actual deduction.  It is only those dollars given beyond the standard deduction amount that really benefit the taxpayer.  So, I suspect the effective tax benefit of tithing may be less for a lot of people than you have calculated.

I’m also curious what percentage of people tithe gross vs net income.  We’ve always done gross and I had never really considered doing it the other way.  All the more reason for us to keep investment fees low, I guess!

Thanks again for the link.

Click to expand...

Definitely many ways to calculate a tithe. Here are a couple perspectives on using after-tax income for the calculation. Link, Link.

Also, in this guest post, the Financial Pharmacist's tithe was based on after-tax money, but I know plenty of people also use gross income for the calculation. And far more people give far less than 10% of anything.

It's true that not all people itemize deductions, but physicians are the target audience and I would guess most physicians will be itemizing deductions due to state income taxes and property taxes. If you've got neither, congrats!

Best,

-PoF

[The White Coat Investor]

Great post! Never considered the effect of a tithe and glad to see it is relatively minor compared to an ongoing AUM fee.