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Post RE higher income withdrawl strategies
Old 09-08-2016, 05:41 AM   #1
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Post RE higher income withdrawl strategies

I am 3 years from potentially launching ER if I have the ballz to do it (would be 55 then). While per Firecalc and applying general knowledge I have absorbed over the years (including from you all) seems to have me in good position, some questions still remain, particularly as it relates to minimizing taxes once I RE. Quick background then the question...

Self-employed, high (but sometimes volatile) income earner, always lived below my means, big saver/investor, last kid (out of 4) graduates college in 3 yrs so heavy lifting almost done, DW has always been at home, no debt other than primary home (only because the debt is so cheap), about 65% of investments in tax differed accts, the remaining in taxable, RE, other investments. Goal is to generate a min of $200K after tax once I launch. My income is too high to make sense in doing any Roth conversions and I suppose I will need an appropriate strategy to bridge 55 - 59 1/2 before I take tax differed distributions. No pension or any other income source except perhaps SS one day (if its still there).

Question: For those of you who are living on a larger post RE income, what strategies have you used to minimize taxes? Clearly every $1 I can save on taxes helps reduce the big nut I have to bank and pull my 4% from.
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Old 09-08-2016, 06:00 AM   #2
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What about tax exempt bonds....municipals etc.
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Old 09-08-2016, 06:03 AM   #3
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What about tax exempt bonds....municipals etc.
Yes, that would reduce the taxes, but assuming a reasonable (historical) rate of return on a 70/30 AA I don't see tax exempt bonds as being a good solution unless I pack away extra millions!
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Old 09-08-2016, 06:20 AM   #4
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Deferred annuity? No max contribution. No minimum required distribution at 70.5. Fidelity offers them for about a .25% fee which is cheap with dozens of investment options. You can pull out at any time without penalty. If all your other tax deferred options are maxed, this vehicle may be an option.
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Old 09-08-2016, 06:26 AM   #5
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When you're not working, then Roth conversions become feasible. This will help reduce the RMD distributions.

There's only so much you can do with the tax-deferred accounts. Uncle Sam is going to get his share sooner or later.

Weight the equities in the taxable accounts, bonds in the tax-deferred.
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Old 09-08-2016, 07:14 AM   #6
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Originally Posted by Turn_the_Page View Post
When you're not working, then Roth conversions become feasible. This will help reduce the RMD distributions.

There's only so much you can do with the tax-deferred accounts. Uncle Sam is going to get his share sooner or later.

...
+1. We are planning to withdraw in OP's neighborhood in our early retirement years (later years will depend upon portfolio performance), and we have an even heavier tilt toward tax deferred accounts. We will be doing fairly aggressive Roth conversions beginning either after our last 1/2 year of work, or the next year, depending upon income levels. While working, it makes no sense--but converting to the top of the 25% (and maybe even 28%) bracket to forestall RMDs putting us higher makes sense. This is particularly true sense you can minimize income while drawing down taxable accounts.

Of course, tax laws change and portfolio values are not set in concrete, so we'll see.
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Old 09-08-2016, 07:20 AM   #7
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If you have not been tax-loss harvesting (TLH) all along in those 35% of investments in those taxable accounts, then you had better get on the stick. Also invest tax efficiently in broad market index funds that pay only qualified dividends.

So most all of one's income would be qualified dividends and long-term realized long-term capital gains (but zero net gains in early years because of previous TLHing). Avoid investments in your taxable account that pay non-qualified dividends.

To raise cash, sell shares with the highest basis in order to minimize realized gains. So if you need $200K for expenses annually and have a $5 million portfolio with $2 million in a taxable account, then you will get $50K in qualified dividends and have to sell $150K of shares with only say $50K of net gains, for $100K of adjusted gross income and even less of taxable income. Yet that will still be $200K of spendable money.

Also look at your Form 1040 Schedule B. The top half should have less than $10 in income, so that means: No savings accounts, no CDs, no cash earning interest anywhere in taxable accounts.
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