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I'm not sure what board to ask this on, here or Estate Planning or Retirement Investing, but here goes:

Most of the info I have read suggests that when retired one should withdraw funds from 'taxable' accounts first, to allow the funds in tax-deferred accounts to continue to grow tax-deferred.

I am just starting to think about how I will go about this when I retire (hopefully in 7 years). I currently have 6 different account types (the percentages in parens indicate what percentage of the portfolio they represent):

1. A variable annuity (12%) - Contributions can be withdrawn tax-free, excess funds are taxed as ordinary income. The contributions represent approximately 46% of the account.
2. A TIRA (5%) - 35% of this IRA would be return of non-deductible contributions.
3. A RIRA (1%) - 100% tax free withdrawals
4. 401k (44%) - full taxable at ordinary income rates.
5. Taxable accounts – (14%) taxed at LTCG rates.
6. Savings bonds – (24%) interest only taxed as ordinary income.

Since the 401(k) has such awful dog fund choices, I thought the first thing I would do at retirement would be to rollover the 401(k) into a TIRA. However I was informed that the calculation made by the IRS as to how much of each IRA withdrawal is 'return of non-deductible contribution' is based on the percentage the contributions represent of ALL IRA accounts. IOW, instead of paying tax on 65% of my withdrawals from the current TIRA, I would be paying tax on 96% due to the 401k rollover adding so much to my IRA totals.

Here is what I had in mind to do upon retirement instead of the conventional wisdom:

1. First, withdraw the funds from the annuity. I want to get out of the annuity, and I won't have a surrender fee as I've held it more than 5 years. I would use part of this withdrawal to pay off my remaining mortgage and the rest to fund my first retirement year. Only 54% of my withdrawal should be subject to ordinary income tax rates, is this correct?
2. In year 2, withdraw the total in the TIRA, which would be enough to fund at least the second and part of the third year of my retirement. I would only be taxed on 65% of this amount, as I would have no other TIRA accounts than this one.
3. Then, in year 3 rollover the 401k into a TIRA, which will be 100% taxed upon withdrawal at ordinary income rates.

I am thinking along these lines because I'm thinking that if I were to die, my beneficiaries cannot take advantage of the 'tax basis' (and I use the term loosely) I have in the TIRA or the annuity, so I might as well take advantage of the tax break it affords me before my demise (and better sooner than later). Am I right in assuming that the 'basis' in these accounts doesn't flow through to my beneficiaries?

I would still have plenty of tax-deferred funds left between the Roth and the TIRA after the 401k rollover. And the funds in the taxable accounts and savings bonds will give me some flexibility in utilizing their tax advantages to keep ordinary income down in any particular year. Also, if I were to work at all in retirement I would use part of my earned income to contribute to a RIRA.

What do you think? Am I way off-base here by flying in the face of the conventional wisdom of using taxable accounts first?

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