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Retirement Discussions / Retire Early CampFIRE
|Subject: Re: taxable vs tax deferred withdrawal||Date: 2/15/2000 12:18 AM|
|Author: jpkiljan||Number: 3926 of 847426|
Chips said: "I've lived off the taxable account, leaving the IRA untouched, and both have grown. This has worked out
fine, except that I'm facing enormous income tax bills after age 70 when I have to take IRA withdrawals. (For this
reason, I need to budget my living expenses and my income taxes separately, so I don't get squeezed later.)"
"I didn't want to throw the previous thread off topic, so I'll start a new one for this. I've seen a little about this in here before, but
I'm curious about it. Like Chips, I'll have fairly similar amounts in both taxable and tax deferred accounts when I retire. From
what I've seen, it sounds like a better plan to withdraw from the tax deferred account first, to avoid the situation Chips
describes. Is this accurate? Any other opinions?
As I recall, which one to tap first depended upon a lot of individual items such as do you have enough in taxable accounts to get you to 59-1/2 and what kind of estate you plan to leave; however, in one of the Motley Fool 'step' guides--either to investing or to retirment--I recall they said just the opposite: You were usually better off spending down your taxable accounts before touching your tax-deferred accounts. This was included in a discussion on what your defined-benefit retirement options were likely to be. There were also lots of caveates that you should really be checking with an accountant before deciding. I think the general idea is that you are better off paying the lower-paying capital gains taxes early on rather than the higher income taxes on IRA's, deferred comp, 401(k)'s, etc. -- John
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