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Help with actual "process" withdrawing from 401K
Old 09-20-2018, 10:01 AM   #1
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Help with actual "process" withdrawing from 401K

We've been saving for 40 years, now trying to figure out the best way to get our $ as DH will be retiring at the end of this year.

I want to move approximately 60K per year from our Fidelity 401K to an online savings bank. Gross amount will be 80K and will have Fidelity withhold 20K in taxes.



Looking at GS Bank/Marcus savings account as per Bankrate it is paying 1.9%. Want to do this about January 1 each year and have it sit there but withdraw monthly.

Then each month I want to transfer $5000 from GS to our local bank for our everyday expenses.



1)--Is Goldman Sachs/Marcus ok to use/do you recommend another? Should I not use an online bank?

2) Can I set up an automatic monthly transfer from GS to my local bank? Can I do this from a GS savings account (better interest rate) rather than from an online checking account? (crummy rate)

3) Is this considered a wire transfer each month? Is there a charge for this? Is there a delay from when I request the transfer to when the $ lands in our everyday expenses account?

4) Is there a maximum number of transfers per year from the GS savings account (or another online account)? I would ideally like to do this monthly.

5) Would you "not" recommend transferring the 60K each year to an online account at all? The interest gives us around $1000 per year= $90 per month = another dinner out!

6) Is there another way you recommend to do this?



We will also be getting SS and pensions. Yahoo!

Can't believe I've been smart/lucky enough to save this but can't figure out the best way to get the $ out to spend.

Thanks!!
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Old 09-20-2018, 10:16 AM   #2
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First, congrats...

Second, have you confirmed your plan allows partial and reoccurring withdrawals? My 401k plan does, however my wife's plan does not. For her plan it's all or nothing. When it's time to tap into her funds I'll move to self directed IRA.
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Old 09-20-2018, 10:27 AM   #3
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Call Fidelity or stop by a local office and ask them all your questions. Probably the right tactic is to roll the 401K into an IRA, which almost certainly offers more flexibility. Also consider opening a checking account with Fidelity (I assume they have them since Schwab does.). That makes transfers easy and near-instantaneous.

Alternatively, if you can't find a local Fido guy/gal you like talk to the manager. If that fails, then interview a couple at Schwab. Those two companies are peas in a pod IMO. Differences are small.
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Old 09-20-2018, 10:41 AM   #4
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Fidelity is a good one-stop for account needs IME.
I plan on rolling my 401K into IRA's at Fidelity when I retire. My 401K is mixed pre-tax and Roth, so segregating it into separate IRA's makes planning sense. If you have after-tax/Roth money in your 401K, it is also advantageous to get the money rolled into a Roth IRA because of no RMD requirements.

Also, do you have any strategy for doing Roth conversions in early retirement ?
It seems to be advantageous for most early retirees.
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Old 09-20-2018, 10:58 AM   #5
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Also, check with Fidelity about money transfers for your 401K/IRA.

Schwab has a feature called Schwablink which lets you link a brokerage account to your checking account. So it isn't necessary to maintain a checking account with Schwab bank, but with any institution you prefer.
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Old 09-20-2018, 10:59 AM   #6
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Originally Posted by Luvdogs View Post
We've been saving for 40 years, now trying to figure out the best way to get our $ as DH will be retiring at the end of this year.

I want to move approximately 60K per year from our Fidelity 401K to an online savings bank. Gross amount will be 80K and will have Fidelity withhold 20K in taxes.



Looking at GS Bank/Marcus savings account as per Bankrate it is paying 1.9%. Want to do this about January 1 each year and have it sit there but withdraw monthly.

Then each month I want to transfer $5000 from GS to our local bank for our everyday expenses.


1)--Is Goldman Sachs/Marcus ok to use/do you recommend another? Should I not use an online bank?
I use GS Bank/Marcus and I am very happy with thier service. I also have my 401k at Fido.
2) Can I set up an automatic monthly transfer from GS to my local bank?
Can I do this from a GS savings account (better interest rate) rather than from an online checking account? (crummy rate)Yes. They use the "trial deposit"process to verify your local bank. Once verified, you can transfer funds and select the frequency (once, weekly, every two weeks, or monthly, and choose the start date. You can transfer from checking or savings, but I think savings transfers are limited to 6 per month.


3) Is this considered a wire transfer each month? Is there a charge for this? Is there a delay from when I request the transfer to when the $ lands in our everyday expenses account?
I don know if these are considered wire transfers or ACH but there is no fee. The transactions generally take a few days to land in my local account (no noticeable delay)

4) Is there a maximum number of transfers per year from the GS savings account (or another online account)? I would ideally like to do this monthly.
I only see the limit of 6 per month.
5) Would you "not" recommend transferring the 60K each year to an online account at all? The interest gives us around $1000 per year= $90 per month = another dinner out!
That's a personal choice, but I wouldn't hesitate to do it.

6) Is there another way you recommend to do this?
Instead of moving $X per year every year, many of us use CD Ladders that mature every year to provide funds for each years expenses.
If you transfer 5 yrs worth of expenses, you'd take a distribution for the 1st year and have Fido withhold taxes as you described. Then you'd request a rollover for the remaining 4 yrs into IRA-CDs at Marcus or wherever you choose. Taxes do not have to be withheld for the rollover. CD rates are better than Online savings. That way you have 5 yrs expenses that are protected from any market risk. Then every year you could buy another 5 yr IRA CD to maintain the 5 yr "bucket"




We will also be getting SS and pensions. Yahoo!

Can't believe I've been smart/lucky enough to save this but can't figure out the best way to get the $ out to spend.

Thanks!!
Congratulations!
The Marcus website FAQ is very good. I think you should take a look at it and give them a call as well as Fido to satisfy yourself. Consider if you wish to set these up yourself or use their phone or "chat support" features to guide you through the process.

EDIT: I forgot......Marcus DOES NOT offer IRA's so you would need to use another bank/credit union to execute the Rollover IRA CD Ladder strategy. You might want to transfer funds from your 401k to a Fidelity IRA and use their brokered CDs to build the ladder.
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Old 09-20-2018, 11:03 PM   #7
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First - you need to roll that 401k into an IRA. That is easy to do.

I don't know about Fido, but Schwab lets us specify whether withdrawals from the IRA should have IRS withholdings deducted, and what percentage.

For Schwab, they have their own bank with a checking account so it automatically goes right into that. It is pretty easy. I used to have a personal checking account but got rid of it and just use Schwab's. All my bills are auto-pay from that checking account. It works unbelievably well. I imagine Fido has a bank also. I highly recommend using it rather than your old account.
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Old 09-20-2018, 11:19 PM   #8
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I do something very similar. While I use DiscoverBank because when I first started online bank returns were much better than money market returns, over the last 6 months or so money market returns have become more competitive so I would probably just skip the online bank and transfer from the money market to my local bank. FZDXX is yielding about 1.96% and would avoid the need for GS Bank.

$20k in tax withheld may be way too much... do a pro forma tax return and based the withholding on your actual expected taxes.
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Old 09-21-2018, 06:44 AM   #9
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First - you need to roll that 401k into an IRA. That is easy to do.

I don't know about Fido, but Schwab lets us specify whether withdrawals from the IRA should have IRS withholdings deducted, and what percentage.
That seems to be a popular opinion, but without knowing details of the 401k, I don't see how you can come to that conclusion. Two reasons the OP may wish to keep the 401k are access to a stable value fund and better liability protection vs. an IRA in some states. Fidelity IRA distributions do let you specify Federal and State withholding percentages as long as you are 59.5

OP
I should have suggested that you check to see if your 401k plan offers a stable value fund that you could use to protect against market volatility. It may be better than using GS/Marcus.
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Old 09-21-2018, 07:51 AM   #10
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My experience with Fidelity won't directly apply, as my account types are different, but I think it's indicative of what you can expect.

I have two inherited IRAs, my current 401(k) and Roth IRA, and a taxable investment account with Fidelity. For the investment account, I have registered my USAA accounts so that I can transfer cash to them with a few clicks. It does take 2-3 business days, though, but it's free. I mostly use this to transfer the dividends to my checking account, since the taxable account is not part of my retirement plan anyway, and the dividends are pretty small.

With the inherited IRAs, I am taking RMDs, and I used to have instructions for Fidelity to calculate it, cut a check, and mail it to me once a year. For some reason I couldn't transfer it, but that may be because they're inherited. Now that I have the transfer set up with the taxable account, my instructions are to send the RMD to the taxable account, where I can transfer it. So this is probably the worst (slowest) case scenario, which would be inconvenient if you are using it for spending money and need to do it often, but IMO even this is manageable if planned right.

One warning is that transfers out of SAVINGS accounts are limited to six per month, or the bank may be required by the Fed to reclassify it as a checking account. So better to plan out fewer, larger transfers from a savings account, or use a checking account for frequent transfers.
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Old 09-21-2018, 07:56 AM   #11
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.... better liability protection vs. an IRA in some states. ...
+1. I'm surprised no one else mentioned this (or did I miss it?). Depends on your State, and it might not be important to you, but it is a consideration.

I don't understand why OP wants to add the complexity of the intermediate savings account and multiple transfers, accounts, etc.

Why not just have $5,000 a month go direct from 401K/IRA to your checking account? That's actually better diversification of the timing of withdrawals, so as to not have one big one hit on a dip. Far better to distribute that across the year. One less account to worry about.

I only see downsides, no upsides. Why do you want to do this?

-ERD50
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Old 09-21-2018, 08:55 AM   #12
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Here is a link with details, including references to applicable state statutes, for IRA creditor protection by state:

https://www.assetprotectionplanners..../ira-by-state/

This site talks in some details about the 2 levels of creditor protection given to 401k rollovers:

https://www.irahelp.com/slottreport/...ou-roll-it-ira
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Old 09-21-2018, 08:57 AM   #13
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+1. I'm surprised no one else mentioned this (or did I miss it?). Depends on your State, and it might not be important to you, but it is a consideration.

I don't understand why OP wants to add the complexity of the intermediate savings account and multiple transfers, accounts, etc.

Why not just have $5,000 a month go direct from 401K/IRA to your checking account? That's actually better diversification of the timing of withdrawals, so as to not have one big one hit on a dip. Far better to distribute that across the year. One less account to worry about.

I only see downsides, no upsides. Why do you want to do this?

-ERD50
Well, if market has a correction downward after pulling the annual need out you'll then feel better. No right or wrong on timing unless one has crystal ball and knows when ebbs and flows in market will occur.
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Old 09-21-2018, 11:56 AM   #14
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+1. I'm surprised no one else mentioned this (or did I miss it?). Depends on your State, and it might not be important to you, but it is a consideration.

I don't understand why OP wants to add the complexity of the intermediate savings account and multiple transfers, accounts, etc.

Why not just have $5,000 a month go direct from 401K/IRA to your checking account? That's actually better diversification of the timing of withdrawals, so as to not have one big one hit on a dip. Far better to distribute that across the year. One less account to worry about.

I only see downsides, no upsides. Why do you want to do this?

-ERD50


I was expecting some dialogue along these lines when OP weighs in. Some discussion of a comfortable AA should precede mechanics of moving assets out of retirement accounts to spending accounts.
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Old 09-21-2018, 12:24 PM   #15
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That seems to be a popular opinion, but without knowing details of the 401k, I don't see how you can come to that conclusion.
That's true, but most 401k's offer a limited set of funds to choose from while an IRA is unlimited. My 401k was with Fido and I rolled it into a Fido IRA and had access to far more funds. But I decided to consolidate all our holdings at Schwab. Well run 401k have limited funds because they bargain with the fund provider for better expense ratios and typically they will only do that for a subset of their funds. If you want to keep those same funds in the 401k, it might be a better deal than in an IRA, and that is one reason to keep it there.
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Old 09-21-2018, 01:51 PM   #16
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OP here, thanks for the replies.

To answer/clarify--yes, the 401K does allow partial/recurring withdrawals, no problem.

I will be keeping it in a 401K instead of transferring to an IRA as it appears it is more bulletproof to lawsuits, etc. About 20% of that is in a Roth. Our tax rate will be lower in retirement than when DH was working (except maybe for 2018). It should be 22% vs 28%--at least for the next seven years... So I will not be transferring to a Roth which I know is not popular here.

Actually some $ is in my Fidelity 401K that I did convert to an IRA (about 25%) but I did not want to bore you with extraneous details.

We do have about three years of "pay" in stable value (2.3%) and 1-year CDs (currently 1.6% but should be able to get around 2% when they come due in a couple of months). This is also within the 401K.

As for tax withholding(20K)-just a round number until I figure it out. Total income including pension/SS/small rental = 190K. Yes, Fidelity will withhold for us, no state income tax here.

ERD50--The intermediate account is just to get some interest (apx 2%) while we draw down on it for the year as it will basically get zero in our checking account. I feel more comfortable taking my "yearly salary" each January instead of monthly from my 401K. If the market goes south in February, at least I'm "good for the year." I'll be taking about 3.5% from the 401K plus non COLA pension and SS.

Most of the 401K is in an S&P index fund (0.013% expense which is fine with me).

**Maybe I'm just too hung up on the extra 2%. If it wasn't for that, I could just transfer the lump sum into my checking account each January. Do you think it's worth the trouble or should I just keep it simple?

Thank you!
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Old 09-21-2018, 03:24 PM   #17
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OP here, thanks for the replies.

ERD50--The intermediate account is just to get some interest (apx 2%) while we draw down on it for the year as it will basically get zero in our checking account. I feel more comfortable taking my "yearly salary" each January instead of monthly from my 401K. If the market goes south in February, at least I'm "good for the year." ...
The market doesn't have a calendar. If you look at studies, I'm pretty sure you will find that a monthly w/d will beat a January w/d on average.

It just stands to reason - if the market on average goes up (and if it doesn't, why be in the market at all?), you want your money in the market as much as possible.

I think your 'comfort' is misplaced. Logic and history is where I find comfort. And maybe in a good bourbon from time to time .

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Old 09-21-2018, 03:55 PM   #18
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I'll play devils advocate. I have a 5% allocation to cash in an online savings account that I consider part of my fixed income (so 35% bonds rather than 40% bonds). I started the online savings account because MM yields wee so low. If bonds return 1.5% more than cash then my cost is about 7 1/2 bps of portfolio yield... not a huge deal.

I have found it useful in that all withdrawals are from that onling savings account so it is easy to identify what I withdraw for the year and for calculating portfolio returns. If I had my withdrawals from my MM fund it would also include a lot of other interortfolio transactions and complicate isolating withdrawals.
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Old 09-21-2018, 04:38 PM   #19
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Looks like you have more than one 401k so not sure which details apply. That stable value fund paying 2.3% is a gem. It pays more than most of the other short term fixed options available. Does the plan that you want to take your "annual pay" from allow you to specify which investments to withdraw from ( or does it withdraw "pro rata" from all accounts)? That stable value fund is the best spot to park funds that you don't want to expose to market risk. I think you should consider using the stable value fund at 2.3% rather than the GS/Marcus account. It would simplify things even if you can specify withdrawals from stable value on a monthly basis to fund your needs. If you cannot specify you would need to rebalance after each withdrawal so doing that every month would be a pain.
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Old 09-21-2018, 05:27 PM   #20
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ERD50--The intermediate account is just to get some interest (apx 2%) while we draw down on it for the year as it will basically get zero in our checking account. I feel more comfortable taking my "yearly salary" each January instead of monthly from my 401K. If the market goes south in February, at least I'm "good for the year." I'll be taking about 3.5% from the 401K plus non COLA pension and SS.

Most of the 401K is in an S&P index fund (0.013% expense which is fine with me).

**Maybe I'm just too hung up on the extra 2%. If it wasn't for that, I could just transfer the lump sum into my checking account each January. Do you think it's worth the trouble or should I just keep it simple?

Thank you!
I agree with ERD50 - I think you are complicating it for little benefit. I would suggest simply leaving it all at Fidelity. Fidelity has plenty of options that can get you close to 2% if you need instantaneous access to the money, or in excess of 2% if you can lock the money up for a short period. For example, one month treasuries are currently paying 2% (can be purchased with no fees at Fidelity), and longer maturities go higher from there.

Also, you can open a checking account with Fidelity and easily set up your recurring transfers - the money would be there instantaneously as it's just data moving around within Fidelity's system. When you transfer interbank, frequently there can be delays on the receiving end.

If you chose Marcus simply because 1.9% looks good, there are many others out there at 2.0%-2.25% right now. As others have mentioned, those yields are only going to go higher over the coming months. Marcus is good, but there are others that are just as good, if not better.

Anyhow, I vote for keeping it all at Fidelity...for the simplicity.

Update: Reviewing more of the comments, I see pb4uski has suggested similar with FZDXX.
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