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Old 08-10-2019, 06:55 AM
6 posts, read 1,192 times
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Originally Posted by NewbieHere View Post
Your account will grow by the time you have to take RMD. But Iím curious why you need $100k of income why your house cost is low, I assume you have paid off your house by now.
The $100,000 is kind of a rough estimate based mostly on the fact we seem to spend more than that now. I have not done a line item budget. Honestly, I should, mostly for my own curiosity. Because we have a pretty skimpy entertainment budget and I am a totally DIY sort of person for both house and cars - and I don't just mean oil changes - I mean everything. My cars get touched by somebody other than me pretty much only when I buy tires. Same with my house. But I do not intentionally look for ways to cut costs. I drive a car that gets poor gas mileage and for which tires are $360 each. But I like cars, so that's my thing. I have a saying- "I only need two things to be happy. A fast convertible and a rule that I cannot go on a four-lane road for any reason." I often violate the second part out of necessity, but I never violate the first part. But yes, my house has been paid off for years.
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Old 08-10-2019, 07:23 AM
6 posts, read 1,192 times
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Originally Posted by Perryinva View Post
It the KISS vein (keep it simple stupid) the simplicity of a withdrawal plan aids in the ability to understand where the money goes and how to maintain it. The main issues I see with the OP’s plan are pretty straightforward. First, the idea of living on tax free SS plus cash so there are zero taxes is a nice idea. But you are wasting an easy opportunity, that will bite you in the a$$ once you turn 71.
You can withdraw from your 401k up to the married filing jointly limit where the standard deduction credits that income to a still “no tax zone”. That way you preserve more of your cash and reduce taxes when you are 71. “But I will need $57k on top of my $43k SS ANYWAY, so why bother?” Because you don’t HAVE to take all $57k from your 401k. Why is this important? If your RMD (required min distribution) is only $40k, and you take the other $17k you need to make it $57k from cash, then you will only pay tax on the difference between the $40k and the deduction of the standard deduction, so only say ~$15k. And your SS is still tax free. But if you take the full $57k from the 401k, you MAY find that NOW you have been hit by the infamous Tax Torpedo and your $43k SS will NOW have 85% of it taxed! So you would go from zero tax on $100k to paying tax on 0.85(43k) + 57k= $93k!!!

Which means you would need an additional ~$11k just to pay the taxes to get the same net income. And that doesn’t even count any inflation. If you need $100k at age 64, you will need $110k at 74.

So it is quite important to USE as much from your taxable accounts first, up to where you would pay taxes to both reduce your RMDs AND preserve your cash for supplemental income to round out the tax reduction.

Also, unless you and your spouse have a death pact that you will both die simultaneously, if there is a survivor, then they are now paying taxes at the single rate, with a reduced SS total, so a much higher percentage of income is taxed. Not something they want to deal with after dealing with your death.
This is very useful. It sounds close to the the second option in my original post. How do I figure out what the 401k withdrawal amount is that keeps me in the no-tax zone, to use your phrase? Is it as simple as it's the same as the standard deduction for a married couple? Or, given my situation I have outlined, some other "ideal" amount to withdraw? I understand the concept, but I am a nuts and bolts detail kind of person. Thanks.
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Old 08-10-2019, 07:36 AM
6 posts, read 1,192 times
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Originally Posted by rjm1cc View Post
The reason you would take money out of your 401k now is to reduce taxes over your life time. I will make up an example but I am not using real tax rates. Just trying to show your what can happen.

Lets say your taxable income is $50,000 and your tax rate is 15% with no 401k income.
Now lets say you take 10,000 from your 401k so your income is now 60,000 and your tax rate is still 15%
Thus you pay 15% on your 401k.

Now at 70 lets say your income before the 401k is still 50,000 and the tax rate is 15%
Now your RMD is 30000 (just a guess) so your total income is 80,000 but your highest tax rate is 20%. Lets say the 20% rate starts at an income over 70,000. Thus only 10,000 of the 401k is taxed at 20%. What you want to do is to take this 10000 now so it is taxed at 15%.

By the way if you did take the extra 10,000 from the 401k now and invest it in dividend paying stocks you may get a very low tax rate on the dividends and the gain when you sell the stock. You may want to discuss your options with a CPA that does taxes.

Also the money left to your children in the 401k will be taxed at their current income tax rates. They may pay less taxes if you get as much money out of the 401k as you can even if you do not want to spend it.

I assume you have a history of limited life span in your family so your planning is a little more complicated. I would look for a CPA that also does financial planning to review your retirement plans. Not looking for someone to manage your investments, just to make sure what you are doing is going to result in what you want.

The first step is to do what you are doing. Then I would go to a few online brokers and read their retirement sections and use their planning software. This should all be free. Then develop your plan. Then pay a CPA for a couple of hours of his time to review.

I am not a big fan of annuities but an annuity that considers your family longevity record may also be a good option.
I get the concept here, but I'm not sure how it applies to me in a practical sense. I won't have a $50,000 taxable income before my 401k. The only taxable income I will have outside of my 401k is SS, which won't be taxable until I start adding my 401k withdrawals to it. But I will start doing some additional reading.
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Old Today, 03:35 AM
14,188 posts, read 7,586,342 times
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Originally Posted by Petunia 100 View Post
I would take 401k distributions from day 1 and supplement with cash. When your RMDs kick in, you are going to pay a lot in taxes. Definitely fill up that 0% tax bracket.
The OP wants $100k. Married, you can pull $100k from a 401(k) and still be in the 12% bracket. The taxes would be about $8,600. Thatís the most tax efficient way to drain the 401(k).
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Old Today, 08:19 PM
2,067 posts, read 1,972,501 times
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Originally Posted by GeoffD View Post
The OP wants $100k. Married, you can pull $100k from a 401(k) and still be in the 12% bracket. The taxes would be about $8,600. Thatís the most tax efficient way to drain the 401(k).
That's assuming no SS or pension. I think with the OP's SS of about $40k, they can pull about $60k from a 401K and still be in the 12% bracket.
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