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When to withdraw from Tax adv. accts
Old 10-30-2013, 08:09 AM   #1
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When to withdraw from Tax adv. accts

I know one size does not fit all, but I will be withdrawing 24k in first year from tax advantaged account with taxes taken out prior to depositing in my account. Taxes will be as regular income at 15%.

Is there any best practice on withdrawal timing?

Monthly
Quarterly
Annually (if so, first, middle or end of year)

Monthly appeals to me because it's simple.

I'm sure there are other threads discussing and I've done a little searching. If you know of a good discussion thread on this subject and can point me to it I will appreciate it...

cheers!
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Old 10-30-2013, 09:08 AM   #2
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I usually withdraw in chunks on an as needed basis, usually two or three times a year. I put the chunk in my bank savings account and transfer every other month or so to checking when checking gets low.

I do it this way because transferring from my IRA can sometimes take several days to make the transfer over and I don't want to get caught short.

Other posters will advise to take out as much as you can while staying within the tax bracket.
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Old 10-30-2013, 09:13 AM   #3
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I have a set amount automatically transferred from my IRA to my checking account every two weeks, simulating my pay periods when still w*orking. I can skip a transfer if I don't need the funds. Works for us.
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Old 10-30-2013, 09:23 AM   #4
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You definitely want to stay within that 15% bracket if at all possible. Me personally, I would push out the withdrawals as late as possible (needs based) so whatever funds your are withdrawing from can continue to earn dividends/interest (that's my plan anyway when I get back into the 15% bracket at 62 due to a downward pension adjustment). Although I guess if you are just re-investing the money then it becomes almost a "wash". Then again, if you moving it to a Roth somehow, you probably want to go early in the year.

I would think the key things are keeping the withdrawal in the 15% bracket as much as possible and making sure you have your extra taxes covered to the point where you don't get hit with an underpayment penalty.
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Old 10-30-2013, 10:13 AM   #5
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If you don't need the money urgently, since investments generally increase in value with time, delaying withdrawals as long as possible permits the maximum tax-advantaged growth. For IRAs and 401ks this generally means not withdrawing until December.
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Old 10-30-2013, 11:14 AM   #6
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If you haven't already done so, check out the ORP (Optimal Retirement Calculator). They do a tax-optimal withdrawal based on your situation assuming a constant asset growth model.

Retirement Calculator - Parameter Form
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Old 10-30-2013, 01:41 PM   #7
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Quote:
Originally Posted by MasterBlaster View Post
If you haven't already done so, check out the ORP (Optimal Retirement Calculator). They do a tax-optimal withdrawal based on your situation assuming a constant asset growth model.

Retirement Calculator - Parameter Form
thanks.. have run this but not entirely sure what it's telling me. If I'm reading it correctly, I will begin converting some of the portfolio into tIRA and Roth IRA's for tax reasons and distribution in later years. Is there another thread that might shed some light on that?
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Old 10-30-2013, 02:27 PM   #8
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Do you have any taxable accounts? Normally you should withdraw from those first and let the tax advantaged accounts accumulate. Look at your likely taxes after age 70.5 when RMD's start. Anything you can take out of a tIRA/401k before then at a lower tax rate would be beneficial. Convert that amount to a Roth if you don't need the funds to live on, or use it for expenses if you have no taxable funds. Use Roth withdrawals to stay in a lower tax bracket if and when that becomes necessary and practical.

It's all tax planning, so for the most part you'll have to figure it out yourself.

As for timing, I'm month to month with taxable account withdrawals, letting things grow until the last minute. My IRA withdrawals are all Roth conversions for now, which have their own very peculiar optimizations.
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Old 10-30-2013, 02:37 PM   #9
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Quote:
Originally Posted by Animorph View Post
Do you have any taxable accounts? Normally you should withdraw from those first and let the tax advantaged accounts accumulate. Look at your likely taxes after age 70.5 when RMD's start.
An optimal plan would be more nuanced than that. You want to make sure that the lower tax brackets are always covered. So depending on yoiur income and nestegg perhaps take enough out of the taxable IRA to fill up the zero tax bracket and 15 percent tax bracket. Then should you need more income take from taxable (after tax) accounts or skim some off the ROTH IRA.

Should you have larger income do the same thing up to the next taxable bracket (25%) and so on.

The trick here is to fully utilize the low tax brackets while you can. If you deplete everything else first (ie after tax and Roth accounts) then you may end up paying way more than the lowest brackets in tax.

It's an optimization problem subject to your income needs and any growth projections you may have.

Along those lines the ORP calculator takes it a step further and re-characterises money from taxable IRAs to Roth IRAs. The same concepts discussed earlier apply in that you are utilizing the lowest tax brackets over time that you can.
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