Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Withdrawal Phase and Taxes
Old 07-26-2011, 01:12 PM   #1
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Withdrawal Phase and Taxes

Standard advice is to use already taxed accounts first, then deferred then tax free (i.e., Roth). Our portfolio is predominantly tax deferred and we have no pensions so we have withdrawn from it pretty generously since retirement and reaching age 59 1/2. Until recently we have supplemented IRA withdrawals with already taxed $. Regular IRA is currently about 75% of our portfolio and have kept at about 15% tax rate but not above since retiring in 2000. Have even done some Roth conversion thinking would be advantageous later on and help keep RMDs from getting really large early on in 70's.

Our already taxed $, except for IBonds, are down now and we have planned to supplement IRA at marginal tax bracket with Roth and/or IBonds. Roths are approximately 15% and IBonds 10% of total portfolio. Those IBonds by the way are vintage 3.4% and greater real return kind, so cashing in will be very hard! Have also thought might want to move Roths or part of Roths to Wellesley and take the dividends that way supplementing IRA some every year. Wellesley is 1/3 of our portfolio allocation already but is all located in the IRA.

Would be interested in others' thoughts on this and strategies of others who have already ER'd on when and how they tap various accounts.
__________________

__________________
WilliamG is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-26-2011, 02:40 PM   #2
Thinks s/he gets paid by the post
Lisa99's Avatar
 
Join Date: Aug 2010
Location: The Villages
Posts: 1,327
William, there is some great past information on your question. You might want to do a search on tax withdrawal optimization. There is also good info on this over on the Boglehead's forum.
__________________

__________________
Lisa99 is offline   Reply With Quote
Old 07-26-2011, 04:00 PM   #3
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Hi Lisa -
Have looked at previous posts but am always interested in folks here and what they are currently thinking. Fyi - I did a search on tax withdrawal optimization and found this post I made 7 years ago!

Roth Allocation
__________________
WilliamG is offline   Reply With Quote
Old 07-26-2011, 04:07 PM   #4
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Check out the ORP (Optimal Retirement Planner) calculator.

They do tax-optimal withdrawal/Roth Conversion for your nestegg.

Optimal Retirement Calculator and Retirement Decision Support System

check it out. All of your questions can be answered with this tool.
__________________
MasterBlaster is offline   Reply With Quote
Old 07-26-2011, 04:16 PM   #5
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Thanks MasterBlaster, we have used I-Orp for several years. I ran it a couple of months ago and it came back completely using up our Roths over 7-8 years with the first 4 years pushed down to the 10% marginal rate. Am sure the math in there somewhere is good, but too radical for me! Want to hold the Roths in reserve a little longer if we can.

How would you input IBonds into I-Orp? I just put it with IRA $. Definitely don't want to call it just taxable account since you have the un-taxed return of principal and not taxed by State tax where we have a 7% bracket.
__________________
WilliamG is offline   Reply With Quote
Old 07-26-2011, 09:03 PM   #6
Administrator
Gumby's Avatar
 
Join Date: Apr 2006
Posts: 10,142
How does ORP work if you don't spend all the withdrawals? Does it add it to taxable account?
__________________
Living an analog life in the Digital Age.
Gumby is offline   Reply With Quote
Old 07-27-2011, 10:08 AM   #7
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Quote:
Originally Posted by Gumby View Post
How does ORP work if you don't spend all the withdrawals? Does it add it to taxable account?
I believe ORP calculates your initial spending amount from data you enter and then provides it's scenario of which accounts will be depleted or added to (e.g., roth conversions) over the life of the simulation.
__________________
WilliamG is offline   Reply With Quote
Old 07-27-2011, 10:19 AM   #8
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
Originally Posted by Gumby View Post
How does ORP work if you don't spend all the withdrawals? Does it add it to taxable account?
That's a good question. I suppose one workaround would be to leave a bigger estate when you go.

Unless you want to leave a big estate, it brings up the question... What is the money for anyway, if not to spend ?
__________________
MasterBlaster is offline   Reply With Quote
Old 07-27-2011, 10:28 AM   #9
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,095
Quote:
Originally Posted by WilliamG View Post
How would you input IBonds into I-Orp? I just put it with IRA $. Definitely don't want to call it just taxable account since you have the un-taxed return of principal and not taxed by State tax where we have a 7% bracket.
I would think you would treat I-Bonds as a tIRA with a basis equal to the price of the bond.

e.g. Bonds worth $150k made up of principal of $120k and $30k interest is treated pretty much the same as a tIRA with a basis of $120k. However, unlike a tIRA you can choose which bonds to cash out to better control the taxable amount on each withdrawal.


I like your idea of a Wellesley style fund in a Roth, with all dividends going into a taxable account. 0% tax on those dividends, I believe, as they are simply treated as a Roth distribution.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 07-27-2011, 10:35 AM   #10
Thinks s/he gets paid by the post
Rustward's Avatar
 
Join Date: Apr 2006
Posts: 1,572
Quote:
Originally Posted by Alan View Post
I would think you would treat I-Bonds as a tIRA with a basis equal to the price of the bond.
As far as I know, ORP assumes zero basis for tIRA account balances -- valid for many situations, but not all. There is no input parameter for specifying basis.

We have some basis in our tIRA's, but it is insignificant.
__________________
Rustward is offline   Reply With Quote
Old 07-27-2011, 11:24 AM   #11
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,095
Quote:
Originally Posted by Rustward View Post
As far as I know, ORP assumes zero basis for tIRA account balances -- valid for many situations, but not all. There is no input parameter for specifying basis.

We have some basis in our tIRA's, but it is insignificant.
I didn't know that. I guess I haven't played around with ORP enough.

We have a large basis in our tIRA's as our income was always too large for deductible contributions.
__________________

__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 04:16 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.