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When you don't have IRA's
Old 02-17-2006, 05:05 PM   #1
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When you don't have IRA's

I wonder how the numbers compute out when you don't have the advantage of having any savings in retirement tax sheltered accounts. I will have a lump sum from selling off my real estate. No tax sheltered IRA's etc., so the money I earn will mostly be all taxed. if I mix a portfolio with Dividend paying equities, bonds, cd's etc, I will be taxed on everything.

Wonder, how much this will effect my safe withdrawel rate since so much more will go to taxes. ANy comments? I know there are I-bonds, and some tax exempt bonds, but how much of that can I buy with $1,400,000?
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Re: When you don't have IRA's
Old 02-17-2006, 06:02 PM   #2
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Re: When you don't have IRA's

It seems to me that under the scenario you describe so much LESS will go to taxes. The funds from which you draw your SWR will have already been taxed. You will only pay tax on the capital gains and dividends that those funds earn. These will be taxed at maximum of 15% (under current tax law) This is in contrast to someone who is taking their SWR from a traditional IRA. In that case the funds have not yet been taxed so ALL of the withdrawals are taxed at the person's marginal tax rate which might be more like 25%. The real difference is that in your situation the funds that support your SWR do not have the advantage of growing tax deferred as they would in an IRA. I'm not sure how to calculate the differential effect of the lack of tax deferral but I'm sure someone else on the board will be able to shed some light on that.

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Re: When you don't have IRA's
Old 02-17-2006, 06:47 PM   #3
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Re: When you don't have IRA's

Quote:
Originally Posted by grumpy
It seems to me that under the scenario you describe so much LESS will go to taxes.
.... The real difference is that in your situation the funds that support your SWR do not have the advantage of growing tax deferred as they would in an IRA.
With judicious selection of investments they would grow tax-deferred.* "Judicous" could simply mean investing in a low-turnover low dividend paying equity mutual fund or ETF such as SPY, IYY, VTI, VFINX, etc.
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Re: When you don't have IRA's
Old 02-17-2006, 07:19 PM   #4
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Re: When you don't have IRA's

modhatter, my friend, you have the financial situation most of us in retirement-land wish we had...*

We worry how to (at low tax cost) convert tax deferred money in our IRAs into Roth IRAs so that we are not forced into the fully-taxed RMD at 70.5 yo.* Grumpy and LOL! are right-on that you should be paying less fed and state taxes on your after-tax retirement portfolio.* Wish that I were in your situation with respect to tax deferred accounts!


Best regards

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Re: When you don't have IRA's
Old 02-17-2006, 07:37 PM   #5
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Re: When you don't have IRA's

Holding stocks in a taxable account isn't that bad - you're generally taxed at favorable dividend rates (15%) and you can postpone most of the gain by using tax-efficient index funds.

The problem comes if you need to hold bonds in your taxable account (i.e. don't have room in 401k, IRA, etc.). I-Bonds can be a good idea. You may also want to look at a low cost (gulp) Vanguard variable annuity to shelter bond income. A VA is _only_ useful for sheltering bond income - it's too expensive to use this vehicle for stocks. Also, if you live in a high tax state, a VA may not be a great idea, as bond income from treasuries is already exempt from state tax when held in taxable, but will be subject to state tax on withdrawal if held in a VA, IRA, 401k, etc.
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Re: When you don't have IRA's
Old 02-17-2006, 11:07 PM   #6
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Re: When you don't have IRA's

I guess what I was thinking was growth of capitol. I plan on splitting the pot. $700,000 bonds and income producing assets that i will need to live on and pay taxes with (along with SS) and the other $700,000 to grow for my son. Starting a Roth or Ira at this stage isn't quite so exciting as starting when your 25.
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