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|Subject: Withdrawal Strategies...Again||Date: 3/9/2014 11:01 AM|
|Author: inparadise||Number: 74443 of 77123|
The standard from what I've read seems to be this:
Retirees should withdraw funds as follows:
-- From their taxable accounts (investment and others)
-- From tax-deferred accounts (401(k), 403(b), 457, SIMPLE IRA plans, etc.)
-- From tax-exempt retirement accounts (Roth IRA, or Roth-optioned accounts)
The goal is to effectively liquidate accounts which are subject to higher taxes, while preserving the tax advantaged accounts. By utilizing this strategy you can lower the amount of income taxes that you'll pay during your retirement and allow tax-advantaged accounts more time to grow and accumulate returns.
But I am still having a tough time wrapping my brain around this. Since we can control our taxable accounts for taxes, such as buying equities that will for the most part be taxed only upon sale or inherited with stepped up basis by our kids, and not subject to RMDs, why is it a better first target for withdrawals?
We are retiring next year, with DH in his mid 50's. He has a 401K that could be tapped penalty free but subject to income tax, which contains about 4 years of retirement income expectations. We expect to be in the 15% tax bracket in retirement, so why would we hold on to the 401K preferentially over taxable accounts, when down the road we will be forced to take RMDs on this account? And when the 401K is about at it's end, he should be over 59.5 and could draw from his TIRAs. I realize we can also do Roth conversions with these assets, and we would indeed max out our 15% tax bracket with these conversions, but with our planned tax bracket I fail to understand why a retirement account that is taxable when you draw on it, and of which RMDs can cause you to lose control of the amount you pull out after age 70, is better to keep for later than funds you can keep in stocks to redeem at cap gains tax rates, and perhaps more importantly don't have to cede redemption control over to the Feds. IMO, the inheritance question is a draw between inherited Roth IRAs and stocks, and a plus going to stocks over TIRAs given the step up in basis.
So if "The goal is to effectively liquidate accounts which are subject to higher taxes.." shouldn't we go after the 401K and TIRA, (without penalty,) first?
What am I missing?
Off to the YMCA to work out to maximize potential of outliving our assets!
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