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The issue of when and how much to draw from tax-deferred is an interesting one. I believe that TMFPixie addressed it sometime back in a post. However, he sorta left me hanging with the answer. Is it better to draw earlier that age 71.5 or wait?

I have done a rather crude look with a spreadsheet using as a criterium for comparison the accumulated Net Present Value after-tax assuming all after-tax funds are invested and 89% of the returns will be capital gains taxed at 20% (8% CG, 1.1% div yield). I assumed that all withdrawals starting at either age 60 or age 71 are term-certain and that the tax rate at age 71 is 39.6% . The early withdrawal scheme only wins if the ordinary tax rate is 28% on all withdrawals under this scheme and, of course, 39.6% for the delayed scheme. However, assuming a 31% rate for the early scheme produces a NPV that is 98.8% of that for the deferred scheme.

Of course, there are some other advantages to having funds free of the tax burden early in ones life.


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