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Withdrawal from which accounts?
Old 09-24-2014, 11:28 AM   #1
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Withdrawal from which accounts?

If this question has been posed in the past, my apologies. I looked around the site and did not find an answer to this particular twist on the question:

As an example, suppose all things are equal: Four equity funds, all after tax (or all pre-tax) with perhaps different amounts.

If your calculator results tell you that your SWR is 4%, what criteria do you use:
1) take an equal percentage from each fund, 2) all of the 4% from only one fund, 3) the fund that is/isn't performing, 4) the larger/smaller fund, or what? Does it matter?
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Old 09-24-2014, 11:45 AM   #2
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From what I have gathered from people here on this board and from reading various things on the topic, one idea might be to sell the "winners" to get to your target asset allocation. But since you're talking only "equity funds", I might assume they are all domestic equity funds, so nothing, really, to rebalance.

After tax or pre-tax makes a big difference. In the after tax scenario (i.e. not an IRA or 401k), you might want to sell an equal number of winners and losers so that you show no gain or loss. Or you might want to manipulate your income up to a certain break point, like the top of the 15% bracket.
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Old 09-24-2014, 12:02 PM   #3
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Quote:
Originally Posted by sengsational View Post
From what I have gathered from people here on this board and from reading various things on the topic, one idea might be to sell the "winners" to get to your target asset allocation. But since you're talking only "equity funds", I might assume they are all domestic equity funds, so nothing, really, to rebalance.

After tax or pre-tax makes a big difference. In the after tax scenario (i.e. not an IRA or 401k), you might want to sell an equal number of winners and losers so that you show no gain or loss. Or you might want to manipulate your income up to a certain break point, like the top of the 15% bracket.


Arggh!! I forgot all about the taxable gain angle.
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Old 09-24-2014, 12:07 PM   #4
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This is a huge aspect of successful ER - and goes beyond just determining which funds to sell & when. You also have to decide what to do with distributions etc.

Check this thread out
Books on Strategies for Withdrawals
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Old 09-24-2014, 12:27 PM   #5
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IMO it becomes a tax strategy matter at that point (assuming the withdrawals are from taxable accounts). However, if you're staying in the 15% tax bracket then I would sell the biggest winners over a year old since LTCG rate is 0%. If you're above the 15% bracket then you have some choices to make.
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Old 09-24-2014, 02:35 PM   #6
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I have an AA that applies to my equity funds. Each fund is a targeted percent of the total. I'll sell off in a way that balances the portfolio back to the target AA. That might be equal amounts from four funds in the example above, or it could be just from one fund if it has done that much better. I take distributions as cash, without reinvesting, unless things get too unbalanced.

I'll try to sell the most expensive shares in a taxable account, and might let things unbalance within my allowed target ranges if that improves the tax situation.
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Old 09-24-2014, 06:16 PM   #7
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I have funds that pay about 2% in dividends each year. So I would need to sell 2% of "principal" each year. But also I use rebalancing bands of 2% or more. So I can pretty much sell anything and stay within my rebalancing bands. Thus, for me it is all about minimizing taxes which means selling losers and things with the highest cost basis and long-term cap gains.
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