Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Taxable vs. non-taxable ratio
Old 08-03-2019, 07:36 AM   #1
Recycles dryer sheets
arch57's Avatar
 
Join Date: Dec 2013
Posts: 64
Taxable vs. non-taxable ratio

I've seen plenty of threads about AA percentages but have not seen any on the ratio of taxable funds vs. non-taxable. Our ratio is 88/12 so most of our "wealth" is tied up in accounts that trigger taxes. We both have been retired for 4+ years and prior to that I ran all the spreadsheets and FireCalc models and pulled the trigger at 100%.

I had a slight panic attack last year as I was running them again when I realized the tool doesn't account for the taxes so if you have $1M in an IRA you really have access to $750K-$800K depending on brackets. I plugged in lower numbers and still no problems but that got me thinking. What kind of ratios do other FIRE folk have?

My DW feels a bit financially insecure because only 12% of our funds are available without thinking about taxes and I have to admit it would be nice to have a larger amount of funds to pull from, especially for travel or remodeling expenses.
__________________

__________________
Retired 2015 @57 Spending...but like there is a tomorrow!
arch57 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!

Old 08-03-2019, 07:48 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,199
I think that ratio is kind of meaningless. Some will have accumulated their wealth via sale of a business, stock options, inheritance, etc. Others will have done it by socking away as much as they could via tax deferred. And some of the latter will have converted part of their tax deferred to a Roth. So I don't think you can draw any conclusions by any one else's ratio, especially that you or they should have done anything different. We all take different paths. Basically if you can defer income until you are in a lower tax bracket you should, and just deal with the taxes then. If you can't defer it due to how you get the income, or you think you'll be in a higher bracket in retirement, pay the taxes up front.

I fully agree that $1M in a tIRA does not give you $1M. I discount my tIRA by the estimated tax liability. Alternatively you could just account for taxes as an expense in Firecalc or whatever you use. One way or another you have to account for it.
__________________

RunningBum is offline   Reply With Quote
Old 08-03-2019, 08:25 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 5,817
Made me look!

88/12 as well, but agree with RB that it doesn't matter as evidenced by the fact that I really didn't know exactly.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 08-03-2019, 08:33 AM   #4
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Location: Los Angeles area
Posts: 1,521
61, retired 13 years (nice to be out from under the 72t limits). I have 99% of my $$ in my IRA (all in dividend growth stocks), and live on the dividends generated. I pull out money as needed about monthly, and buy more stock with the extra quarterly. If I needed more than the dividend flow, I would sell some stock.

I cannot see worrying about taxes. Would I like to pay less ? Sure. But if my biggest concern is paying a lot in taxes because I made a lot of $$, I really have nothing to worry about.
__________________
learn, work, save, invest, fire
CyclingInvestor is offline   Reply With Quote
Old 08-03-2019, 08:38 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Historic Florida
Posts: 3,431
We are as near as damn it 50/50 in IRAs vs No Qualified funds.
__________________
"Arguing with an Engineer is like rolling in the mud with a pig. Just remember that the pig likes it."
ShokWaveRider is online now   Reply With Quote
Old 08-03-2019, 08:44 AM   #6
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: NC Triangle
Posts: 4,112
Im not sure if youre referring to tax-advantaged accounts only. If so, mine are split evenly between traditional (tax-deferred) and Roth (tax-free).
__________________

steelyman is offline   Reply With Quote
Old 08-03-2019, 08:46 AM   #7
Recycles dryer sheets
 
Join Date: Sep 2017
Posts: 386
We are flipped with 15% in tax deferred and 85% in taxable. We’ve tried several calculators that include taxes (fidelity RIP is quite good), be even though they say they account for the tax deferred vs taxable accounts, all, including vanguards personal planning service, seem to be wildly over estimating taxes. That or I’ve screwed something up...

This is my biggest stressor with respect to pulling the plug as well. The approach you’ve taken, to just discount your initial funds by some % is how I’ve seen others do it and it makes sense to me.
tb001 is online now   Reply With Quote
Old 08-03-2019, 08:49 AM   #8
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: lumpen slums of cyberspace
Posts: 29,661
Quote:
Originally Posted by arch57 View Post
I've seen plenty of threads about AA percentages but have not seen any on the ratio of taxable funds vs. non-taxable. Our ratio is 88/12 so most of our "wealth" is tied up in accounts that trigger taxes. We both have been retired for 4+ years and prior to that I ran all the spreadsheets and FireCalc models and pulled the trigger at 100%.

I had a slight panic attack last year as I was running them again when I realized the tool doesn't account for the taxes so if you have $1M in an IRA you really have access to $750K-$800K depending on brackets. I plugged in lower numbers and still no problems but that got me thinking. What kind of ratios do other FIRE folk have?

My DW feels a bit financially insecure because only 12% of our funds are available without thinking about taxes and I have to admit it would be nice to have a larger amount of funds to pull from, especially for travel or remodeling expenses.
Taxable accounts also pay taxes. That same $1M will be taxed on realized gains and distributions.

Is the withdrawal rate sustainable? Does the budget include taxes? That's what matters.
MichaelB is online now   Reply With Quote
Old 08-03-2019, 08:57 AM   #9
Thinks s/he gets paid by the post
jollystomper's Avatar
 
Join Date: Apr 2012
Posts: 2,036
Our ratio is 79% tax-deferred to 21% taxable. Or, 63% tax-deferred to 37% taxable+cash. Either way, we are not losing sleep over it.
__________________
FIREd date: June 26, 2018 - wwwwwwhat a rush!
jollystomper is offline   Reply With Quote
Old 08-03-2019, 09:55 AM   #10
Recycles dryer sheets
cbo111's Avatar
 
Join Date: May 2014
Posts: 423
My accountant told me he has numerous clients that have nearly all their savings in 401k accounts. They are routinely shocked when it comes time to withdraw $40K for a new car and he has to advise them to withdraw $55K to cover the taxes. I think a lot of investors many years ago were advised to max out the 401k's and they literally did just that.
I like the simplicity of having a small ladder of CD's that I can earmark for big ticket purchases, leaving the IRA and 401k to continue growth.
cbo111 is offline   Reply With Quote
Old 08-03-2019, 10:09 AM   #11
Recycles dryer sheets
 
Join Date: Aug 2013
Location: New Jersey
Posts: 331
20% Federal Tax is automatically withheld on 401K withdrawals. State tax withholding is optional - 3% seems reasonable for most. So $49200 would need to be withdrawn from a 401K to buy a $40000 car.



Unless you're in the higher tax brackets, you'll likely get some of that money back during tax filing.
Al18 is offline   Reply With Quote
Old 08-03-2019, 10:10 AM   #12
Thinks s/he gets paid by the post
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 2,033
94/6
Taxes are a big suck on the budget.
__________________
No, not rich. I am a poor man with money, which is not the same thing"
GravitySucks is offline   Reply With Quote
Old 08-03-2019, 10:35 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Jan 2018
Location: Tampa
Posts: 4,043
86/2/12 TIRA/Roth/Non Taxable
We plan to convert more to Roth from 65 - 70 y.o., plus spend down some TIRA from 60 - 70.
Not too concerned.
__________________
TGIM
Dtail is online now   Reply With Quote
Old 08-03-2019, 10:42 AM   #14
Recycles dryer sheets
swakyaby's Avatar
 
Join Date: Feb 2011
Location: central California
Posts: 436
Currently 50:50 between tax-deferred and after-tax.
swakyaby is offline   Reply With Quote
Old 08-03-2019, 10:44 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,442
Our taxable/tax-deferred/tax free were 44/53/3 when I retired. Since then I have been doing Roth conversions to the top of the 15/12% tax bracket so our ratios today are 21/55/24.

Taxable is 58% cost basis and 42% unrealized gains.

Since I retired I converted ~$322k and paid $25k (8.1%) in federal tax so on those conversions I saved a bundle because the avoided federal tax was 28% or more. Even going forward I expect to pay 12-22% vs saving 28% or more when the income was deferred.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 08-03-2019, 11:02 AM   #16
Dryer sheet wannabe
 
Join Date: Aug 2018
Posts: 13
7% ROTH
25% tIRA
68% taxable with about 62% basis.

I overestimated my current (pre IRA withdraw) taxes to cover the estimated tIRA taxes and then included all that in my annual expense estimate for FIREcalc. I'll also be converting my tIRA to ROTH to utilize my lower tax rate brackets in the meantime. So at the end I'm thinking/hoping I've overstated my annual tax expense.
SALTedOut is offline   Reply With Quote
Old 08-03-2019, 11:08 AM   #17
Dryer sheet aficionado
 
Join Date: Jun 2013
Posts: 38
86% pre-tax / 9% roth / 5% HSA

I expect our tax bracket to be lower, and no state tax in withdrawal compared to our rates during accumulation.

We'll do our best to avoid taxes on the HSA; hoping they will allow tax-few HI premium payments at some point.
HenryD is online now   Reply With Quote
Old 08-03-2019, 11:20 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,442
Quote:
Originally Posted by HenryD View Post
.... We'll do our best to avoid taxes on the HSA; hoping they will allow tax-few HI premium payments at some point.
They already do for Medicare premiums other than Medigap.

Quote:
After your wife turns 65, you can use money from her HSA to pay Medicare premiums for both of you. And even though your premiums are deducted from your Social Security benefits, you can withdraw money from the HSA tax-free to reimburse yourselves for the Part B premiums. You can also use the HSA money to pay Part D premiums for both of you, as well as premiums for Medicare Advantage plans (but not medigap).

Keep in mind that your wife will no longer be able to make new contributions to her HSA after she signs up for Medicare.

https://www.kiplinger.com/article/in...-tax-free.html
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 08-03-2019, 11:45 AM   #19
Dryer sheet aficionado
 
Join Date: Jun 2013
Posts: 38
Quote:
Originally Posted by pb4uski View Post
They already do for Medicare premiums other than Medigap.
Thanks for the info. I still have a lot to learn about Medicare.
HenryD is online now   Reply With Quote
Old 08-03-2019, 11:56 AM   #20
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Bay Area
Posts: 188
For my investments, I'm 80% taxable, 20% deferred. I worked for organizations that offered COLA pensions as their primary retirement savings tool...so I saved extra mostly in taxable accounts.

If I added in the value of the pensions (using equivalent annuity values), my ratio would be closer to 50% taxable/50% deferred.
__________________

Nature Lover is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 3 (0 members and 3 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
Non-Taxable vs Taxable Investments? treeofpain FIRE and Money 7 08-20-2014 07:53 PM
401k (high expense ratio) vs. Non-Tax deferred account (low expense ratio) Mike54 FIRE and Money 15 11-11-2012 10:31 PM
AA & withdrawals between taxable and non taxable accounts. ron244 FIRE and Money 14 05-18-2007 05:59 PM
How to allocate taxable and non-taxable money? Olav23 FIRE and Money 6 01-10-2007 12:28 PM
Taxable or Non Taxable Seeker FIRE and Money 3 05-07-2005 11:23 AM

» Quick Links

 
All times are GMT -6. The time now is 10:21 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.