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As we all know, Michael Kitces is mathjak107's love child, so I'll go out on a limb and guess the comments in the interview are likely to be mathjak-approved.
I thought some folks here might like to read the interview.
How to Sequence Withdrawals in Retirement
Financial planning expert Michael Kitces discusses strategies to help retirees smooth out their tax bills in the drawdown phase.
It begins:
Quote:
Christine Benz: Hi, I’m Christine Benz from Morningstar. Figuring out where to source withdrawals in retirement is perennially a hot topic for individual investors and their advisors. I recently sat down with financial planning expert, Michael Kitces, to get his take on that question.
Michael, thank you so much for being here.
Michael Kitces: Absolutely. My pleasure. Appreciate the opportunity.
Speaking of "smoothing tax bills", I am being audited by the IRS. It appears that people who have solid after-tax funds to live on (such as return of their after-tax annuity premium in the form of non-taxable portion of annuity income) may not be eligible for ACA tax refund, despite adequately low AGI (ie, taxable income). Interesting that it coincides with Bernie Sanders calling for annual taxation of total assets, rather than of newly earned income. Stay tuned; I'll let you know how it ends.
If people end up means-tested to the point of taxation of assets (rather than taxation of newly generated income), the IRA withdrawal strategy, or any other pattern of withdrawal of savings in retirement, may become irrelevant - we could be taxed over and over and over again on funds that were taxed before.
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It's easy to fall into a Bear Trap if you choose to not learn and implement a withdrawal strategy that fits your plan.
Coworker who paid for 'the best' financial guidance left employment with a huge severance, and advised to take a huge 401k loan. Both were fully taxable as a distribution and it crippled future retirement funds + made for a huge tax obligation surprise 20 months after the advice and withdrawals. (Too late to fix).
something few give thought to is what kind of changes will they be making investment wise ….
many may be 100% equities through their accumulation stage. then as they get close to retirement switch to a more conservative portfolio or something like wellesley which is a popular retiree choice .
well having decades of pent up gains in index funds can leave you with a tax torpedo …
i was lucky as i made my changes in 2007 as i thought i would retire earlier then i did when we bought the house in the poconos .
well i was using all managed fidelity funds so i paid taxes over the years …i could make my changes all in one year and done .
had i had decades of pent up taxes from etfs and indexing i would have had a tax torpedo to deal with .
i would have ran smack into 2008 with still high levels of equities because i would have had to spread my changes out over years .
so having great tax efficiency can end up as horrible tax efficiency down the road
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by mathjak107
something few give thought to is what kind of changes will they be making investment wise ….
... having great tax efficiency can end up as horrible tax efficiency down the road
Thus... Plan your options for dealing with taxes, and withdrawals, and surprises.
Thank goodness for Section 179 accelerated depreciation, 1031 exchanges, collecting payments over time on appreciated properties, 72t, Roth rolls, backdoor Roths, QCDs.... But my favorite tax tool has been my DAF (donor advised fund) started when I was in my 30s. It's been a pleasure to distribute those tax free highly appreciated funds during ~20 yrs with no wage income. The DAF will last until QCDs, or possibly forever. Been distributing 10%+ annually since 1990 from self managed DAF, and it keeps growing, so I upped withdrawal to 20% to sustain balance through my lifetime.
Find a plan and tools that meet your objectives. (For life, not only for tomorrow)
Last edited by StealthRabbit; 05-20-2023 at 06:19 AM..
well i am not about to give more money away to charity then i want to just to save the taxes …
i never let the tax tail wag the investment dog.
in fact even delaying taxes on things like 1031 or tax loss harvesting or just holding off selling can bite you .
it bit me hard when we delayed selling our commercial lease rights and the capital gains taxes on our income jumped from 15% to 23.80% and since it was two years before medicare they wanted to surcharge us .
so delaying or kicking that tax can down the road can have unanticipated outcomes
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