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Wisdom of Withdrawing Funds due to Low Tax Bracket?
Old 06-04-2018, 07:50 AM   #1
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Wisdom of Withdrawing Funds due to Low Tax Bracket?

Hi all, I have a question and would like your thoughts!


This is our first year retired and thus far things are working great! We are living off savings and minimal "hobby job" income. We will end up solidly in the 12% tax bracket.


Next year may likely be different. So, my question is:


Does it make sense to withdraw funds from my IRA this year while in the 12% tax bracket for use next year when my tax rate might be higher? I'd probably put the money in a general savings account. In addition, If I took money this year to use next year, it may keep me in the 12% tax bracket next year, as well.



What do you think?


Thanks in advance for any thoughts!


Major
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Old 06-04-2018, 08:16 AM   #2
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I would suggest converting the funds you would withdraw into a Roth IRA. Then any future gains are tax free.
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Old 06-04-2018, 08:46 AM   #3
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My game plan is to withdraw/convert to the top of the 12% bracket. I'm in the 22% (was 25%). 3 years, 6 months, 3 weeks but who's counting?
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Old 06-04-2018, 10:53 AM   #4
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Roth conversions, and you also may be able to take LTCG at 0%.

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Old 06-04-2018, 02:19 PM   #5
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One of the huge benefits of living off savings is that you have the ability to sell appreciated securities in taxable accounts and/or do Roth conversions and pay little or no tax. Believe it or not, a married couple could have as much as $101,200 of income and pay between $0 and $8,883 in federal income taxes depending on the mix of ordinary and preferenced income.

Over the last 5 years I have converted ~$250k and paid ~7.5% in tax.... much less than the 28%+ that I avoided paying when I deferred that income and less than the 22% or more that I expect to pay once I start SS.
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Old 06-04-2018, 06:26 PM   #6
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If you have any long term capital gains, in taxed accounts, I'd cash some of that out now (up to the ~$77K joing filing limit)....0% tax on that! Sorry if you don't...for those considering retiring early, it may be beneficial to have both taxed and tax-deferred accounts to minimize taxes later...
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Old 06-04-2018, 07:31 PM   #7
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Yes, make the most of the 12% bracket while you can. I'm doing similar with IRA's and I-Bond interest.
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Old 06-04-2018, 07:51 PM   #8
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Quote:
Originally Posted by Dave J View Post
Yes, make the most of the 12% bracket while you can. I'm doing similar with IRA's and I-Bond interest.
Yep, I'm planning to take out $24K chunks of an inherited IRA during the first four years of early retirement to keep taxes low, and make up the rest with ROTH principal and a little with taxable accounts.
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