Taxable vs. non-taxable ratio

[arch57]

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.

[RunningBum]

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.

[marko]

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.

[CyclingInvestor]

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.

[ShokWaveRider]

We are as near as damn it 50/50 in IRAs vs No Qualified funds.

[steelyman]

I’m not sure if you’re referring to tax-advantaged accounts only. If so, mine are split evenly between traditional (tax-deferred) and Roth (tax-free).

[tb001]

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.

[MichaelB]

Quote:

Originally Posted by arch57 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.

[jollystomper]

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.

[cbo111]

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.

[Al18]

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.

[GravitySucks]

94/6
Taxes are a big suck on the budget.

[Dtail]

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.

[swakyaby]

Currently 50:50 between tax-deferred and after-tax.

[pb4uski]

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.

[SALTedOut]

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.

[HenryD]

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.

[pb4uski]

Quote:

Originally Posted by HenryD .... 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

[HenryD]

Quote:

Originally Posted by pb4uski They already do for Medicare premiums other than Medigap.

Thanks for the info. I still have a lot to learn about Medicare.

[Nature Lover]

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.