Been thinking about this lately, and interested in inputs/comments. And quite possible that I am missing something fundamental/obvious.... don't be shy!!
I FIRE'ed Jan 2016 and DW will work until 2020, maybe a bit beyond depending on job opps. We are not pulling from our portfolio at all now, in fact, still contributing a bit. My 401k is 45% of the portfolio, hers is about 20%, and I have an IRA that is also about 20%. Rest is pretty much post tax, cash or cash like accounts. DW will be 59.5 Jan 1 2019. I am 2.5 years younger.
Our present annual expenses are about $90k, and we are modelling that that stays the same, although we know it won't, we will downsize at some point, but for the sake of this exercise....
The the question is about tax strategy. The new brackets (I could be off by a bit, but this is from memory, filing jointly) $18k-$77k 12%, and $77k-$163k (24% Federal).
Given that, it seems to me that it sure would be beneficial to stay in the 12% bracket after DW retires and we are funded (entirely, if not mostly) by 401K/IRA draws which I understand are taxed as ordinary income. And it seems that if expenses need $90k a year from the portfolio, and we have a mortgage and some other deductions, staying on the south side of $77k taxable might be do-able.
Living expenses are one thing, but early in retirement, while we still can, we want to travel, a good bit. And "travel" is not in that $90k budget. I'd like to have $15-$20k annually to travel with, at least for 10-15 years. The portfolio looks to be able to support this, BUT if I over draw to cover travel... I could easily get bumped from the 12% bracket, to the 24% one.... 10% more Federal! That is at least $7700 less a year!
Which brings me to my question: Would it makes sense for DW to pull from her 401k starting next year, pay the taxes on that, and sock it away somewhere ("post tax") for travel later? She is already in the 24% bracket with her salary anyway, and yes, we'd get nailed 24% on the 401k draws too, but, isn't that better than getting bumped to 24% after we are both retired on all that we draw??
Or is the first $77k taxed at 12%, and only above that at 24%??
Thanks for any insights, thoughts...
I FIRE'ed Jan 2016 and DW will work until 2020, maybe a bit beyond depending on job opps. We are not pulling from our portfolio at all now, in fact, still contributing a bit. My 401k is 45% of the portfolio, hers is about 20%, and I have an IRA that is also about 20%. Rest is pretty much post tax, cash or cash like accounts. DW will be 59.5 Jan 1 2019. I am 2.5 years younger.
Our present annual expenses are about $90k, and we are modelling that that stays the same, although we know it won't, we will downsize at some point, but for the sake of this exercise....
The the question is about tax strategy. The new brackets (I could be off by a bit, but this is from memory, filing jointly) $18k-$77k 12%, and $77k-$163k (24% Federal).
Given that, it seems to me that it sure would be beneficial to stay in the 12% bracket after DW retires and we are funded (entirely, if not mostly) by 401K/IRA draws which I understand are taxed as ordinary income. And it seems that if expenses need $90k a year from the portfolio, and we have a mortgage and some other deductions, staying on the south side of $77k taxable might be do-able.
Living expenses are one thing, but early in retirement, while we still can, we want to travel, a good bit. And "travel" is not in that $90k budget. I'd like to have $15-$20k annually to travel with, at least for 10-15 years. The portfolio looks to be able to support this, BUT if I over draw to cover travel... I could easily get bumped from the 12% bracket, to the 24% one.... 10% more Federal! That is at least $7700 less a year!
Which brings me to my question: Would it makes sense for DW to pull from her 401k starting next year, pay the taxes on that, and sock it away somewhere ("post tax") for travel later? She is already in the 24% bracket with her salary anyway, and yes, we'd get nailed 24% on the 401k draws too, but, isn't that better than getting bumped to 24% after we are both retired on all that we draw??
Or is the first $77k taxed at 12%, and only above that at 24%??
Thanks for any insights, thoughts...
