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Best way to take income from taxable account?
Old 01-01-2009, 04:38 PM   #1
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Best way to take income from taxable account?

We're early retirees. At least for a while, unless we get the urge to work again.
145k of Inflation Protected Securities fund in IRA's.

About 900k-1.1m in taxable acct at VG. All Adm shares. Taxable is mix of 15% Total Stock fund, 65%Total Bond fund, 15% Total Intl Stock fund, 5% Money Market. Re- balancing quarterly after everything is long.

15% tax bracket so far. Very low living expenses. Need about 37k/year after taxes. Income now from other sources is 5k/yr, so we would need about another 32k from the taxable acct. All dividends/ cap gains being reinvested into the same fund shares right now. More $ coming down the road from an inheritance. 5-10 yrs max.

Looking for the most tax efficient/growth efficient way to take income from the taxable acct to live off. Will be working with an accountant looking quarterly for TLH opportunities.

VG advisor said to sell shares of whatever is doing best at re balancing time. Take whatever income we think we'll need for a year. Put it in MM and use the rest to re balance. Does that sound right, or is there a better way to receive income, such as having the dividends/cap gains paid to our MM, or selling a certain dollar amount of each fund each month?

Would taking some out, whether by selling shares monthly or having divs/cap gains paid out every month reduce the compounding effect? Thanks.
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Old 01-01-2009, 04:53 PM   #2
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I plan to continue having the dividends paid to my MM account. I will remove my expenses from the MM account.

Then at the end of the year, or at other times when my AA is grossly out of balance, I'll rebalance.

After years like this one, I won't have to sell any stock funds to rebalance. I'll be buying them, instead. During "up years" that might not be the case.

(caveat: I will retire in 10 months, so this is simply my plan)
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Old 01-01-2009, 05:30 PM   #3
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Quote:
Originally Posted by Want2retire View Post
I plan to continue having the dividends paid to my MM account. I will remove my expenses from the MM account.

Then at the end of the year, or at other times when my AA is grossly out of balance, I'll rebalance.

After years like this one, I won't have to sell any stock funds to rebalance. I'll be buying them, instead. During "up years" that might not be the case.

(caveat: I will retire in 10 months, so this is simply my plan)
I RE in 13 months and plan to do something very similar. In 2008 my Wellesley fund distributed ~$30k which is just about what I need to top up my pension. Currently it is re-invested but in 2010 I'll start re-directing to the MMF.
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Old 01-01-2009, 05:56 PM   #4
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You might as well take distributions in cash since you are paying taxes on them already. Rebalance with any extra you'd prefer to keep invested. If you need more than that, rebalance by selling long-term shares. You may be getting 0% capital gains rate in the 15% tax bracket, can't beat that if that's the case.

I prefer to take income as needed, rather than once a year, unless the market is doing very well or very bad. That's roughly 1/2 year more cash always invested instead of sitting in a MM. You may be more comfortable with a bigger cash cushion.
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Old 01-02-2009, 04:39 PM   #5
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Well, after seeing several Firms and getting their suggestions?
1. Kept 3 yrs COH out and into VSGBX fund
2. I didn't go with the only invest for TaxEff. deal, but for the Rtns..
3. Most is In Balanced Funds and they don't swing nearly as much, like owning Individual equities and Don't have to have a dozen funds to have a Bal. Port and just let them do it.. Yes, they charge alittle more ( ave 1%) but It's Cheaper than Hiring a Firm to do the same thing..( Firms Hate Bal. Funds, I wonder why? could it be of the one's I met, None of their Recommended Ports Could Beat my Bal Funds Port in previous yrs?..LOL )
4. I added some bonds to the Port to get about a 40/60 mix and ended Dwn about -4% this Yr as a result..
5. Previously for Several Yrs I only had VWINX thru my Company plan and it is still part of my Port. of Bal. Funds..
6. My CPA Firm I use has access to my Accounts (to observe only) and takes care of the Details to pay qtryl txs. and Planning..by sending me instructions of what to do and then I take care of it with my Brokerage account at Vanguard.
7. I used to Not Auto Reinvest Divs/CG's and Do it Manually, but After Owing mostly Bal. Funds, it wasn't worth it to me to do that anymore..playing with ave of 9k qtrly Divs = $36k yr and making ave of an extra 5% apy and after 30-35% taxes wasn't needed anymore aft. Retiring.. and I thus became a " Real Burned Out Lazy Investor " I guess.. & I Love it..

I suppose I should Find some Guy that wants to play with it, but I'm quite frankly just too lazy and don't trust much of anyone anyway.. If a Couple of extra K a yr is worth it to you? By all means Pursue it..
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