I am 54, planning to retire at 55 or 56. Have recent inhheritance of 400,000 plus 200,000 in 401K at work and about 70,000 in other stocks and own a modest home worth $100,000, paid for. Kids college paid for. No debts. Want to travel, possibly invest in vacation codo on the beach, in Delaware or New Jersey. Pension will be $45,000. Have invested 200,000 of inheritance in mutual funds at Vanguard, about half in total stock market. I was thinking about letting 401K grow while spending down inheritance money because 401K will grow tax deferred. Wife thinks shouldn't spend down any money, keep all principle and only spend earnings because later we will be taxed on 401K as ordinary income and may go over into 31% tax bracket after her pension (minimal - about $4000 a year) and both of our social securities are in place because pensions and social security for both of us at 62 will total $75,000 a year.Can you give us some advise?
One suggestion. Let your 401K grow untouched. When your 59 1/2 you can Lump Sum Distribution it at special 10 year averaging methods. Then put it in Vanguard Tax Managed G &I Fund and after a couple of years withdraw what you need at Long Term Capital Gains rates. The sooner you do this the better to keep the 10 year averaging top bracket low, but can't befor 59 1/2. This avoids what your wife thinks will happen at high tax rates. Get your other funds into ones that only generate Long Term Capital Gains and live off them instead of Income generating funds. Cuts your taxes by about 30% to 33%. Ed
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