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Pixy writes,

The old rule of thumb used to be to draw down your taxable investments first to allow continuation of tax deferred compounding within IRAs as long as possible. I'm in the middle of a study now, though, based on a hypothetical long-term buy and hold investor with !/3 of a portfolio in a taxable account and 2/3 in an IRA. Assuming a withdrawal rate of 5% of the initial portfolio that increases with inflation each year, the study is indicating that for overall tax impacts (during and after life), the total tax burden to the family is less taking the distribution from the IRA first. Obviously, much depends on withdrawal rates and the rates of return in the taxable account versus that of the IRA. Still, when assuming the same rate of return in both the taxable and the IRA, my preliminary results indicate the family is better off if the money comes first from the IRA that's taxed at ordinary rates.

I agree. I went through the same analysis 5 years ago when I retired and decided it was better to take SEPP withdrawals from my IRA and keep my LTB&H, 100% stock, taxable account intact.

Down the road, your hiers would rather get a $1 million taxable account (where they get the stepped up basis and pay taxes at the capital gains rate) rather than a $1 million IRA (where everything is taxed as ordinary income.)

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