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The benefit from an IRA is the deferral of taxation from your high earnings years - which are typically your higher tax rate years - to lower earnings, and lower tax rate, years.

Sorry, a bit late to this thread. Just found this board and bookmarked it.

This topic has huge interest for us right now as we plan our strategy for draw down of assets in stage 1 of retirement.

Retiring in 18 months or so, DH 56 and me 52. Have significant amount of assets in taxable accounts, some of which will incur large cap gains upon sale, a decent sized 401K (with Vanguard as administrator) enough to fund 3-4 years of retirement expenses that can be tapped penalty free by DH, and significant amounts in IRAs with 90% traditional, 10% Roth.

We figure that our lowest tax years will be from 57 to when we take SS. Struggling with is it better to draw on 401K at our low tax rate, keeping our taxable accounts fully funded? It helps to realize we also will be paying about $200,000 in kids' college costs from DH age 56-61, so keeping assets on hand is not a bad thing. I have no idea if our much reduced income will have much of an effect on our expected family contribution for financial aid. Not looking for loans, and expecting to have to pay full amt. Have retiree health insurance, but only for us. Would have to go ACA to get kids covered, looking to keep income to point where we benefit from subsidy, with ironically the costs for the 4 of us under ACA being less than the retiree health care for the two of us.

I guess the argument in favor of spending taxed accounts and keeping funds in 401K would be ability to convert to Roth down the road. Are there 70.5 age RMDs on a 401K if our plan lets us keep the funds in there, or is that only if we roll it over to a Trad. IRA? Besides minimizing RMDs and their impact on taxing SS, would like to max out Roth conversions in the event that we don't use all our funds before we die. Because we are not looking for a high expense retirement, frankly initially doing quite well with $50K expenses (taking college costs from saved funds), our FP expects we will leave a significant amount to the kids. Yeah, we might spend more when we get a better handle on what costs really are, as opposed to the educated guesses we are making now, but neither of us are spenders.

Any large gaping holes in this thought process? For decades we've simply maxed out savings in the most tax advantaged way that we could with a good return on investment. Trying to get into spending mode with a focus on maintaining max tax advantage/return and now focusing more on risk.

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