Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 10:51 AM   #21
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Ratio of taxed to tax deferred savings at ER

nun,

If you are worried about depleting an IRA with SEPPs, use a more conservative method of calculating the payment when you start.* The most consevative way (gives the smallest annual W/D) to compute a SEPP is by dividing the balance of the IRA by your life expectancy.* Using this method you can't deplete the IRA since you recompute the W/D* every year using new account balance and life expectancy, making every W/D less than the account balance.
__________________

__________________
jdw_fire is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 11:09 AM   #22
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by jdw_fire
nun,

If you are worried about depleting an IRA with SEPPs, use a more conservative method of calculating the payment when you start. The most consevative way (gives the smallest annual W/D) to compute a SEPP is by dividing the balance of the IRA by your life expectancy. Using this method you can't deplete the IRA since you recompute the W/D every year using new account balance and life expectancy, making every W/D less than the account balance.
My ignorance of 72t is showing. What are the rules about determining minimum withdrawals exactly?

On a more philosophical point, if you are fairly young say 40 and had 30k to invest what percentage would you put in tax deferred and what in after tax investments. I think what I'm getting at is this, is it better to defer tax and have to take the money out early with a 72t to ER or to split the money between after tax and tax deferred so you can live on the after tax money and defer tax on the deferred tax money longer? I suppose it all depends on tax bracketts

I fell a spreadsheet coming on
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 11:17 AM   #23
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Ratio of taxed to tax deferred savings at ER

Barry C Picker, CPA/PFS, CFP has written an article on that very topic

http://www.bpickercpa.com/articles/iraannuitize.htm
__________________
jdw_fire is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 11:21 AM   #24
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,078
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
I fell a spreadsheet coming on
Better watch out, those things can be dangerous. Do you need some help getting up?

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 11:53 AM   #25
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun

On a more philosophical point, if you are fairly young say 40 and had 30k to invest what percentage would you put in tax deferred and what in after tax investments. I think what I'm getting at is this, is it better to defer tax and have to take the money out early with a 72t to ER or to split the money between after tax and tax deferred so you can live on the after tax money and defer tax on the deferred tax money longer? I suppose it all depends on tax bracketts
Save as much as you can in tax deferred and then the rest and the tax savings on the tax defered amount* in after tax accounts.* An example to illustrate: assuming your tax bracket is 25% and you can put the entire but only 30k in a tax deferred account, then put the entire 30k in the tax deferred account and put the tax savings of 7.5k in an after tax account.* This will "cost" you no more than putting the entire (and only) 30k in an after tax account (no tax savings) but you will have an extra 7.5k saved for retirement.* Let Uncle Sam help your savings plan as much as possible, in this example an extra 7.5k.
__________________
jdw_fire is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 12:10 PM   #26
Recycles dryer sheets
 
Join Date: Jun 2005
Posts: 126
Re: Ratio of taxed to tax deferred savings at ER

At 56 (and hoping to retire soon) I'm about 45/55 taxed/tax deferred without including house equity and about 60/40 including the house.
__________________
jerryo is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 12:30 PM   #27
Dryer sheet aficionado
 
Join Date: Aug 2004
Posts: 43
Re: Ratio of taxed to tax deferred savings at ER

A little off the subject. But not really. I first thought I was a millionaire when my net worth broke a mil. I soon will be a millionaire II when my nest egg of taxable + tax deferred savings hits the mark. But, oh no, I recently read in Forbes magazine that you are not really a millionaire until your taxable savings (not including residence equity) hits a million. AAAAAAAAGGGGHHHH. I doubt if I will ever see that.

And then recently, again, Forbes says you are not even rich until your taxable savings (no residence equity) gets to 5 Million dollars.

GEEEZ.
__________________
region2 is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 12:31 PM   #28
Thinks s/he gets paid by the post
 
Join Date: Jun 2005
Posts: 4,005
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
However, it still doesn't avoid the problem of if you deplete your IRA with SEPPs you'll have to pay the 10% penalty retroactively. This has made me think that if you invested in FI or an annuity inside the IRA so that the return was guaranteed to be more than your required payments you could avoid the possibility of depleting the IRA. What do folks think?
There is an exception in 72(t) that says if you violate the SEPP rule because you're IRA is depleted to a zero balance, you WILL NOT have to pay the 10% retroactive penalty. You just don't get withdrawals anymore.

That's when you SEPP your other IRA(s) to get the income you need.

Having some taxable accounts will certainly help out with liquidity and cash flow issues. For example, if you need to buy a new car or a house, you could use your taxable accounts to fund that big lump sum expense.

Otherwise, the amount you are taking out of the IRA with the SEPP will probably be higher than your SWR anyway.
__________________
justin is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 04:36 PM   #29
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Re: Ratio of taxed to tax deferred savings at ER

Personally only about 10% of my net worth is tax-deferred. Partly because I invested my tax-deferred accounts in the most volatile investments (as I should) and lost a bunch in the dotcom bust. And partly because I got a lot of savings from taxable stock options.
__________________
free4now is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 05:14 PM   #30
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by nun
I can see doing a 72t for 5 years and using minimum distributions, but I'd get worried at doing it for say 15 years with the bigger payout methods. What investment mix do people use in 72ts, can you use an annuity in them?
Annuities provide no value inside an IRA (if ever). You can create a pseudo-annuity with a much better interest rate and no fees (except some transaction costs setting it up) by buying laddered CD and bonds. The money will be there when you want to withdraw it. You can set it up for any period you want.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 05:56 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Re: Ratio of taxed to tax deferred savings at ER

Looking to retire in 3 years at 38. My projections claim that I'll have about 13% of the portfolio in tax deferred and the rest taxable at that time.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 06:45 PM   #32
Full time employment: Posting here.
 
Join Date: Feb 2006
Posts: 987
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by region2
A little off the subject. But not really. I first thought I was a millionaire when my net worth broke a mil. I soon will be a millionaire II when my nest egg of taxable + tax deferred savings hits the mark.* But, oh no, I recently read in Forbes magazine that you are not really a millionaire until your taxable savings (not including residence equity) hits a million.* *AAAAAAAAGGGGHHHH. I doubt if I will ever see that.
Yes, it's not part of this subject string, but you do bring up something that constantly crops up - that is "what you actually have"...

I look at it in a slightly different manner....

What if you were to apply for a job, and the base salary was $xxx.* Would you ask the company what was the "net salary?"* Of course not, since net is different for each indivudial.

Now, what if your "favorite brother in law" (or your father in law!) asked you how much you made last year?* Would you quote your net (after taxes, deductions, 401k, IRA, etc, etc, etc?)* Of course not!* You would tell (either of them) your "gross salary".

For me, that's a "constant measurement".* Some people on this thread are looking at the value of their home as a "non taxable holding".* I don't.* A home is somewhere where you "hang your hat" and regardless of the value, you still need somewhere to live.* Therefore, it's not part of my "gross" or "net" "Net Worth".* If I sell it (downsize, move to an apartment, move in with my father-in-law!) I'll add whatever value is left and add it to my net worth.

Unless you can "cash it in" tomorrow (regardless of being taxable, or non-taxable), I don't consider it in my calculation...

- Ron
__________________
rs0460a is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-26-2006, 11:15 PM   #33
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by 3 Yrs to Go
Looking to retire in 3 years at 38. My projections claim that I'll have about 13% of the portfolio in tax deferred and the rest taxable at that time.
I bet there's a good correlation between having a high proportion of after tax savings and
"high net worth". Me I'm currently 66/34 tax deferred to taxed ratio, no stock options, but 20 years of contributions to 401ks etc and buying mutual funds, should be 50/50 when I downsize the house. I like that ratio, but its a very personal thing.. Saving after tax might not be optimum for tax purposes, but I hope to be able to leave the tax deferred alone until I'm 60 and I have the freedom of the after tax investmenst rather than a 72t.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-27-2006, 10:52 AM   #34
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: Ratio of taxed to tax deferred savings at ER

We are at 60% deferred and 40% after tax at age 54. We will retire next year and plan on using the after tax funds to carry us to age 60 when we start nipping away at the pre-tax accounts.

Our projections show a tax problem due to too much income from our IRAs after age 70.5 when RMDs are required unless we spend down the larger accounts before we reach age 70.5 to avoid some of the tax hit since the RMDs will be taxed at a pretty high rate (30+%). Spending our after tax accounts first will lower our tax bill by about half since most of our income will be from capital gains and dividends.

Spreadsheets help you see the effect of RMDs and taxes. I just projected a constant conservative % increase compounded annually until RMDs are required and then calculated the RMDs for each IRA and the overall tax hit based on all of our expected income (pension, dividends and RMDs). We also track changes in expenses over time and match income stream requirements to anticipated expenses. (I know....looks like work ) but our situation is a bit complex and I needed this data to know how all the various IRA-income-expense-tax issues played out over time.

Do what works best for you.

72t site that might help you. http://www.72t.net/Default.aspx
__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: Ratio of taxed to tax deferred savings at ER
Old 04-27-2006, 01:02 PM   #35
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Re: Ratio of taxed to tax deferred savings at ER

Quote:
Originally Posted by SteveR
Our projections show a tax problem due to too much income from our IRAs after age 70.5 when RMDs are required unless we spend down the larger accounts before we reach age 70.5 to avoid some of the tax hit since the RMDs will be taxed at a pretty high rate (30+%). Spending our after tax accounts first will lower our tax bill by about half since most of our income will be from capital gains and dividends.
Part of my ER planning is to keep my income requirements in the 15% tax bracket. I'll live off after tax money for the first 10 years of ER and then when I hit 59 1/2 I'll start spending down the IRAs etc. My calculations show that I won't have the enviable problem of getting into a high tax bracket because of RMDs. I'll be 70 in 2031, given today's 15% bracket is $35k ($28k+$5k standard deduction) at a 3% annual increase the 15% tax bracket would be $71k in 2031. Using today's life expectancy factor of 27.4 I'll need an IRA balance of about $2M to make the RMD $71k.
__________________

__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bush floats a national sales tax dex FIRE and Money 22 08-17-2004 08:15 AM
Proposal for Tax Free Savings Accounts johnblake Other topics 5 08-14-2004 08:01 PM
Tax Deferred to Roth Strategy mccl FIRE and Money 10 06-09-2004 12:08 PM
Taxable vs. Tax Deferred Accounts Theo FIRE and Money 1 06-03-2004 07:42 PM
EE bonds to ??? cute fuzzy bunny FIRE and Money 1 12-24-2003 01:33 PM

 

 
All times are GMT -6. The time now is 11:46 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.