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Old 06-19-2019, 01:19 PM
 
Location: Denver, CO
1,700 posts, read 4,064,633 times
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Based on tax implications alone start drawing down your tax-deferred accounts until your future RMDs are at a manageable level. Roth and HSA would be the last out. Again we are just looking at minimizing the amount of tax you end up paying and maximizing the growth of tax-free income.
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Old 06-19-2019, 01:57 PM
 
Location: Charleston, SC
1,362 posts, read 767,246 times
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If you're using ACA Subsidies to bridge the age gap until Medicare, you should minimize your Income. You'll want to keep it below the Limits for Subsidies. That's about $64K for MFJ.
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Old 06-19-2019, 02:09 PM
 
477 posts, read 94,825 times
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Quote:
Originally Posted by Moonwalkr View Post
Based on tax implications alone start drawing down your tax-deferred accounts until your future RMDs are at a manageable level. Roth and HSA would be the last out. Again we are just looking at minimizing the amount of tax you end up paying and maximizing the growth of tax-free income.
Thanks, that largely matches my own thinking. Certainly the Roth will be the last out. And (as mentioned above) I agree that drawing down tax-deferred accounts early on is prudent to reduce future RMDs. Now let's fine tune that approach a bit, projecting into the future.......

It's now 10 years later, so our mythical 73 year old is collecting SS and RMDs are coming in from tax-deferred accounts. The whittling down of those accounts between age 62-70 had the desired effect, so those RMDs are lower. Low enough that our retiree needs to draw from somewhere else (e.g., to take a big trip, or just to pay the bills).

At that point, do you (a) take larger distributions than required from tax-deferred account, (b) sell taxable mutual funds, (c) sell individual stocks, or (d) other? I am guessing no real difference (tax wise) between (b) and (c).... but do they hold any advantage over further depletion of the retirement account? To my thinking, continuing to draw from (a) tax-deferred account is the way to go, because that further reduces the RMD calculations... while the non-retirement accounts will never be subject to RMD (and could therefore sit forever, in theory). Correct?
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Old 06-19-2019, 02:46 PM
 
Location: Denver, CO
1,700 posts, read 4,064,633 times
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Quote:
Originally Posted by HeelaMonster View Post
Thanks, that largely matches my own thinking. Certainly the Roth will be the last out. And (as mentioned above) I agree that drawing down tax-deferred accounts early on is prudent to reduce future RMDs. Now let's fine tune that approach a bit, projecting into the future.......

It's now 10 years later, so our mythical 73 year old is collecting SS and RMDs are coming in from tax-deferred accounts. The whittling down of those accounts between age 62-70 had the desired effect, so those RMDs are lower. Low enough that our retiree needs to draw from somewhere else (e.g., to take a big trip, or just to pay the bills).

At that point, do you (a) take larger distributions than required from tax-deferred account, (b) sell taxable mutual funds, (c) sell individual stocks, or (d) other? I am guessing no real difference (tax wise) between (b) and (c).... but do they hold any advantage over further depletion of the retirement account? To my thinking, continuing to draw from (a) tax-deferred account is the way to go, because that further reduces the RMD calculations... while the non-retirement accounts will never be subject to RMD (and could therefore sit forever, in theory). Correct?

Yes generally Capital gains taxes are more favorable than ordinary income. So always do a quick check and see what mix is the best to draw from. It's also a good opportunity to get rid of an investment you don't want.
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Old 06-19-2019, 02:49 PM
 
Location: Gilbert, AZ
3,182 posts, read 1,961,125 times
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Quote:
Originally Posted by HeelaMonster View Post
It's now 10 years later, so our mythical 73 year old is collecting SS and RMDs are coming in from tax-deferred accounts. The whittling down of those accounts between age 62-70 had the desired effect, so those RMDs are lower. Low enough that our retiree needs to draw from somewhere else (e.g., to take a big trip, or just to pay the bills).

At that point, do you (a) take larger distributions than required from tax-deferred account, (b) sell taxable mutual funds, (c) sell individual stocks, or (d) other? I am guessing no real difference (tax wise) between (b) and (c).... but do they hold any advantage over further depletion of the retirement account? To my thinking, continuing to draw from (a) tax-deferred account is the way to go, because that further reduces the RMD calculations... while the non-retirement accounts will never be subject to RMD (and could therefore sit forever, in theory). Correct?
Honestly, there is no way to give a general answer. The whole notion that higher withdrawals from retirement accounts equates to a higher tax bracket can all go out the window once you start taking Social Security. Do a web search on "tax torpedo social security" and start reading.

The only solution is to look at your own situation in detail, and re-visit every year or two. This is especially important right before you start taking Social Security benefits. If you find that most or all of your RMDs will be in a "torpedo" bracket, it might make sense to just convert everything into a Roth account the year before you start taking SS. This can hit people of relatively modest means; don't assume it only applies to those with millions of dollars.
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Old 06-19-2019, 03:05 PM
 
3,367 posts, read 652,172 times
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Quote:
Originally Posted by FiveLoaves View Post
If you're using ACA Subsidies to bridge the age gap until Medicare, you should minimize your Income. You'll want to keep it below the Limits for Subsidies. That's about $64K for MFJ.
Yes. The Obamacare subsidy thing has changed the typical advice to let your ROTH accumulate tax free and draw from other, taxable accounts. If you're in your early 60s and not yet eligible for Medicare, it's worth using your ROTH to stay under the subsidy cliff if you can. The difference between having a gross income of $48,000 and a gross income of $50,000 can be $600 or $700 more a MONTH in premiums.
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Old 06-19-2019, 04:47 PM
 
Location: Gilbert, AZ
3,182 posts, read 1,961,125 times
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The ACA crediting system certainly adds another layer of haze to an already murky problem.

I've decided to personally not do anything intentional on this front. Pulling more $$ from taxable accounts early on (in order to capture the tax credit) will leave more assets in 401k, and so later on I'll have a higher tax bill on those 401k withdrawals. This is not meant to serve as any sort of advice to others, except to point on that it is hardly a slam dunk one way or the other.
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Old 06-19-2019, 04:55 PM
 
155 posts, read 45,998 times
Reputation: 89
The right order depends on your individual circumstances. It matters what your expenses are, what your SS and pensions if any bring in, and how much is in each of the several buckets. Is married, spiral finances must be added to the mix. It's worth doing it the right way, not the general way. Most people only want to retire once.
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Old 06-19-2019, 09:37 PM
 
Location: Dallas
901 posts, read 1,929,635 times
Reputation: 800
Quote:
Originally Posted by HeelaMonster View Post
This is not intended to be another Social Security (SS) thread, but recent discussions about SS have me thinking about this broader question:

What is the optimal order for tapping various asset classes in retirement... to pay for daily living expenses, travel, vacations, what have you?

SCENARIO AND ASSUMPTIONS: Let's take a person early in retirement, mid-60s... therefore young enough that required minimum distributions (RMD) have not kicked in. Old enough to be eligible for SS but not yet collecting. A lifetime of saving and investing has resulted in assets in several different categories. Some will be needed immediately (e.g., to buy groceries and gas), some later on (as other sources are drawn down), some may never be needed (and could be left for heirs). Some will be taxable when used, some distributions will be tax-free. With that background, in what order would you start drawing from the following categories, and why? They are numbered for identification, and not to indicate preferred order...

1. Government or corporate pension (there may not be a choice here, if you are eligible and automatically begin receiving at retirement)

2. Cash in money market account (2% interest)

3. Individual stocks in brokerage account (i.e., not in retirement vehicle, with long term taxable gains)

4. Mutual funds outside retirement account (taxable when cashed out)

5. Traditional IRA, 401k, 403b, or other tax-deferred vehicle that will be taxable at time of distribution (lumped together, on the assumption that tax implications are the same across this category)

6. Roth IRA or 401k that will not be taxed at time of distribution

7. Social Security (i.e., start collecting early, so that other sources are left for later)

8. Savings bonds or other instrument with some tax preference, but still taxable

9. Other (if I overlooked something obvious)?
You forgot HSA accounts, unless you are lumping them in with #6.
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Old 06-20-2019, 01:10 AM
 
71,589 posts, read 71,751,865 times
Reputation: 49194
we simply accumulated 2 years expenses entering retirement in cash and very short bond funds since our assets are about 1/3 ira and 2/3 taxable brokerage account ... as the first year gets spent we start to channel fund dividends and distributions in to forming the upcoming year .

so we always have 1 year being spent down and 1 year forming
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