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Help with our IRA withdrawals
Old 07-11-2018, 06:59 PM   #1
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Help with our IRA withdrawals

Long time lurker. Seldom post. Here is our situation. We are married couple. Me 61 and DH 58. Both retired.

We have rental income that we currently live on as rentals are paid off.

I知 having trouble figuring out how and when to withdraw. In 9 years we will have RMD so I would like to withdraw 4% yearly and start paying the taxes.

What is your method?

Do you take it out all at once?

I am also on Boglehead forum and invested in Index funds. 50% bonds and 50% total stock market. My DH is nervous as we have always saved and never taken money out yet.
I知 also nervous but I do not want the DS and DD to benefit if we never withdraw any money.



Thank you in advance.
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Old 07-11-2018, 07:09 PM   #2
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I do Roth conversions to the top of the 12% tax bracket ($101,400 of income in 2018). Over the last 5 years I have converted ~$250k and paid about 7.5% in federal income tax.

So my IRA is $250k plus earnings lower that it would have been.

Perhaps your DH would prefer Roth conversions since you aren't withdrawing the money... just moving it from a tax-deferred pocket to a tax-free pocket but it will lower your RMDs.

See https://vanguardblog.com/2018/06/25/...070618:101:RET
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Old 07-11-2018, 07:39 PM   #3
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I let it roll tax free until RMD time. You have 10 years of tax free growth before you have RMD's. I cannot see taking out 40% of your IRA and paying taxes on it in the interim.

Your first RMD will only be 3.6% of your IRA
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Old 07-11-2018, 08:04 PM   #4
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But if money was taken from the IRA痴.

Would you take the distribution in January each year?

Or maybe set it up on Monthly withdrawals?

I知 curious as to how people do it. I知 not sure how to search for the answer.
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Old 07-11-2018, 08:23 PM   #5
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I let it roll tax free until RMD time. You have 10 years of tax free growth before you have RMD's. I cannot see taking out 40% of your IRA and paying taxes on it in the interim.

Your first RMD will only be 3.6% of your IRA
The classical analysis is to consider what your marginal tax rate would be now in perhaps early-retirement vs what it would be if you left it in TIRA to grow more and perhaps coinciding with the onset of SS. If your rate now is lower, it may be advantageous to do the Roth conversion esp.if you can pay the tax w/ outside funds. If not, perhaps do it your way. Many have a period after retirement before RMDs start when the marginal tax rate is lower.
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Old 07-11-2018, 10:07 PM   #6
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Quote:
Originally Posted by soontobe2015 View Post
But if money was taken from the IRA痴.

Would you take the distribution in January each year?

Or maybe set it up on Monthly withdrawals?

I知 curious as to how people do it. I知 not sure how to search for the answer.
It doesn't much matter.... there is no right answer... some people do once a year and others do quarterly or monthly or as needed.
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Old 07-11-2018, 10:09 PM   #7
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Originally Posted by Souschef View Post
I let it roll tax free until RMD time. You have 10 years of tax free growth before you have RMD's. I cannot see taking out 40% of your IRA and paying taxes on it in the interim.

Your first RMD will only be 3.6% of your IRA
What if you could take some out now and pay 12% vs having to pay 22% later?
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Old 07-11-2018, 10:10 PM   #8
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I recommend you take a long hard look at Roth Conversions before RMDs set in.
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Old 07-11-2018, 10:31 PM   #9
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...............................
I知 also nervous but I do not want the DS and DD to benefit if we never withdraw any money.
What does this mean..........that you want to withdraw some money from the IRA and spend it on yourselves? If you withdraw from the IRA and either convert to Roth or don't spend it, won't DS and DD benefit?
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Old 07-11-2018, 11:07 PM   #10
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Old 07-11-2018, 11:37 PM   #11
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Originally Posted by soontobe2015 View Post
But if money was taken from the IRA痴.

Would you take the distribution in January each year?

Or maybe set it up on Monthly withdrawals?

I知 curious as to how people do it. I知 not sure how to search for the answer.
I think people do it both ways. I have inherited IRA's that are on the RMD liquidation schedule. I use the RMD to pay some expenses and I withdraw monthly to match the expenses. Every year I look at the balance and the life table and then set up a monthly withdrawal that balances higher RMD's in the future with taxes today. Because the IRA's are inherited, there is no option to convert to Roths.

Others withdraw and rebalance at the beginning of the year. It's really personal preference.
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Old 07-12-2018, 07:17 AM   #12
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My standard answer is to set aside an hour or two to perfect the inputs to i-orp, and use those results as another data point in your decision. And my standard warning: set the rate of return the same in all tax categories (after tax, IRA/401k, and Roth).

The consensus here is that it's more aggressive at Roth conversations than some are comfortable with. So do a sensitivity analysis...if you limit Roth conversions, do you get "almost as good of a result"? If so, then you can know the RMD torpedo will cause minimal damage.
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Old 07-12-2018, 08:02 AM   #13
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This year we started IRA withdrawals. We have scheduled monthly auto-withdrawals for our "planned" budget, the opposite side of dollar cost averaging. Near the end of the year we will review our tax liability and do a Roth conversions on the remaining space to the top of the 12% tax bracket. YMMV
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Old 07-12-2018, 08:29 AM   #14
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Quote:
Originally Posted by soontobe2015 View Post
Long time lurker. Seldom post. Here is our situation. We are married couple. Me 61 and DH 58. Both retired.

We have rental income that we currently live on as rentals are paid off.

I知 having trouble figuring out how and when to withdraw. In 9 years we will have RMD so I would like to withdraw 4% yearly and start paying the taxes.

What is your method?

Do you take it out all at once?
........................
Thank you in advance.
SoonToBe, I am retiring next month and struggle with these same questions of the nitty-gritty mechanics of how to do it. Asset Allocation and SWR are hard enough, but this one perplexes me just as much.

I have followed this blog for a while now, and am finding his detailed, practical and understandable personal plan to be helpful to me. I'm amazed someone would share so much personal info on the Internet, but bless his heart for doing it.

Here are a couple of posts I've printed off and refer to again & again:

Our Retirement Investment Drawdown Strategy - The Retirement Manifesto

How to Build A Retirement Paycheck From Your Investments - The Retirement Manifesto

Obviously I don't adhere to every aspect of his plan, but it gives me a baseline to work from. I'm actually visiting with my fee-only financial planner later this month for one last check on our asset allocation as I want to implement his bucket strategy.

There's no right or wrong - you just need to figure out what makes you comfortable. Good luck, and share what you decide on (if you're comfortable doing that).
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Old 07-12-2018, 09:34 AM   #15
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To answer your question, I take one distribution a year and pay Federal taxes at that time. My unpaid state taxes for the year are below the penalty start so I pay those at tax time. No specific time of the year.

If you read the above responses, there is a common theme of moving money to Roth. It is a subject that your understanding will help you financially after you turn 70.5. You have not given any numbers for your IRA/401k, so we can only give answers that cover all situations. If your RMDs increase your income to higher tax brackets, you will pay a greater to much greater share in taxes. You may also be subject to Medicare premiums, which you can think of as another income-based tax, that grow substantially as your income increases.

For these reasons, you may be in a situation where you can stay in a lower tax bracket before you start SS and before RMDs start where you can withdraw even more than 4% with low taxes while keeping some of it tax sheltered by placing it in a Roth account. If you don't already, I hope you take the time to understand these concepts.
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Old 07-12-2018, 11:13 AM   #16
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I am only 60, but took 401k withdrawals to match the difference between our salaries when w*rking and our pensions. I took the withdrawal once a year from my stable value account, which is 10% of portfolio, not 401k account. After 3 years of good returns and less than 2% withdrawals, we have swung for the fences this year and took out 4%.

To quote another forum member, "his initials are Robbie", and are blowing the dough.

From this point on we will always be in the 22% bracket, unless the pols vote the rate higher. The Bush tax cuts were supposed to be temporary also, but those were kept in place and renewed.
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Old 07-12-2018, 01:29 PM   #17
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From this point on we will always be in the 22% bracket, unless the pols vote the rate higher. The Bush tax cuts were supposed to be temporary also, but those were kept in place and renewed.
The current rates expire. They actually have to vote to extend them.
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Old 07-12-2018, 02:34 PM   #18
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"I do Roth conversions to the top of the 12% tax bracket ($101,400 of income in 2018)"


I'd appreciate some clarification on this statement, please.
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Old 07-12-2018, 03:34 PM   #19
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"I do Roth conversions to the top of the 12% tax bracket ($101,400 of income in 2018)"


I'd appreciate some clarification on this statement, please.
Top of the 12% MFJ is $101,400 ($77,400+$24000 standard deduction). If your bills+taxes are 80k, that leaves $21400 to be able to convert and stay in the 12% bracket.
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Old 07-12-2018, 04:24 PM   #20
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"I do Roth conversions to the top of the 12% tax bracket ($101,400 of income in 2018)"


I'd appreciate some clarification on this statement, please.
The top of the 12% tax bracket for a married couple is $77,400 in 2018. The standard deduction for a married couple is $24,000. So if in 2018 a married couple has $101,400 of income, after $24,000 standard deduction, they will have taxable income of $77,400... equal to the top of the 12% tax bracket.

If the $77,400 was all ordinary income, then the first $19.050 would be taxed at 10% and the remaining would be taxed at 12% for total tax of $8,907.

For us for 2018, I expect that we'll have about $40k of qualified dividends and LTCG and my pension is $18k... so I can do up to $43,400 of Roth conversions ($101,400-$58k).

The first $6,000 is not taxed since it is covered by the excess of $24k standard deductions over $18k pension, the next $19,050 is taxed at 10% and the remaining $18,350 is taxed at 12%.... so my total tax on the $43,400 would be about $4.107 or 9.5% of the $43,400... much less than the 28% or more that I avoided when I deferred that income and also less than the 22% I expect to pay once I start SS.
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