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Withdrawal Plan Age 50-60
Old 06-22-2016, 01:22 PM   #1
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Withdrawal Plan Age 50-60

About a year left until freedom. Here is our tentative yearly withdrawal plan (first 10 years):
401k 72t-$24,000
Roth Contributions Withdrawal-$16,000
Pensions-$22,000
May also convert from IRA to Roth IRA $16,000/yr (to keep the Roth accounts unchanged).
Income will be $62,000 but taxable will be either $46,000 or $62,000 depending on the Roth conversions (still weighing the ACA benefits versus future taxation).
No real question just thought I would post a real-life example (for those that are interested). Comments, other ideas, or your plan would be great.
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Old 06-22-2016, 01:41 PM   #2
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Originally Posted by RetireAge50 View Post
About a year left until freedom. Here is our tentative yearly withdrawal plan (first 10 years):
401k 72t-$24,000
Roth Contributions Withdrawal-$16,000
Pensions-$22,000
May also convert from IRA to Roth IRA $16,000/yr (to keep the Roth accounts unchanged).
Income will be $62,000 but taxable will be either $46,000 or $62,000 depending on the Roth conversions (still weighing the ACA benefits versus future taxation).
No real question just thought I would post a real-life example (for those that are interested). Comments, other ideas, or your plan would be great.

How is converting the same $16k from IRA to Roths to keep the Roths unchanged any different than just withdrawing the 16k from the IRA directly as taxes are the same either way?
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Old 06-22-2016, 02:19 PM   #3
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Cannot withdraw from the IRA without a penalty.
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Old 06-22-2016, 02:23 PM   #4
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And while under age 59 1/2, be sure to plan to wait 5 years after each separate Roth conversion before withdrawing it lest a penalty apply.
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Old 06-22-2016, 02:33 PM   #5
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And while under age 59 1/2, be sure to plan to wait 5 years after each separate Roth conversion before withdrawing it lest a penalty apply.

True. Hoping to not withdraw the conversions at all (or after age 65).
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Old 06-22-2016, 02:34 PM   #6
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Cannot withdraw from the IRA without a penalty.

Duh... I often fall into my post-59.5 mindset. Even your username, thread title, and reference to the 72t was not enough to wake me up...
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Old 06-22-2016, 02:34 PM   #7
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About a year left until freedom.
If you wait two years, would that make the situation better? How close would you be to penalty free withdrawals? Or a better income?
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Old 06-22-2016, 03:42 PM   #8
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If you wait two years, would that make the situation better? How close would you be to penalty free withdrawals? Or a better income?

I would have to work 6 more years to get to the 401k age 55 rule. No no no no! I like to do cheap things like ride motorcycles, go hiking, or go snorkeling followed by a nice meal. No need for more income.

Also more reinforcements are available in the future: home sale proceeds, more pensions, and social security.
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Old 06-22-2016, 04:28 PM   #9
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Do you have any after tax cash to spend? If I was in your shoes I'd get as much as possible before you stop working and live on that money for ACA purposes. pension plus after-tax income ...low or free health care, once you start the 72T you won't have many options to lower health costs. I sure would be wary of what 15 years of private pay coverage is going to cost.
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Old 06-22-2016, 05:10 PM   #10
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And while under age 59 1/2, be sure to plan to wait 5 years after each separate Roth conversion before withdrawing it lest a penalty apply.
So what would a person do here ?
Would it be best to open a separate Roth for each conversion, to clearly be able to avoid any confusion on withdrawals ?

If you deposit a conversion into an existing ROTH, doesn't the money mix and the IRS consider x% of it converted money when you withdraw. Like how they do with IRA convert to ROTH when you have pre-tax and post-tax contributions ?
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Old 06-22-2016, 05:54 PM   #11
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Do you have any after tax cash to spend? If I was in your shoes I'd get as much as possible before you stop working and live on that money for ACA purposes. pension plus after-tax income ...low or free health care, once you start the 72T you won't have many options to lower health costs. I sure would be wary of what 15 years of private pay coverage is going to cost.
Yeah good point 72t kind of locks you in. Not a lot of cash unless we decide to sell the house approximately $400,000 equity. ACA premiums for me and DW would be:

Income $22,000 $108 per month
Income $46,000 $315 per month
Income $62,000 $456 per month
No subsidy $567 per month

Doesn't seem too bad.
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Old 06-22-2016, 06:11 PM   #12
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Be sure to split off some of the money you intend to do the 72t upon, because if you take out a penny more than the rule states, you get whacked with a giant penalty.

So split off $xxx amount as a separate IRA, then if an emergency happens you can pull out cash for the emergency and only pay a 10% penalty on it.
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Old 06-22-2016, 06:11 PM   #13
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Yeah good point 72t kind of locks you in. Not a lot of cash unless we decide to sell the house approximately $400,000 equity. ACA premiums for me and DW would be:

Income $22,000 $108 per month
Income $46,000 $315 per month
Income $62,000 $456 per month
No subsidy $567 per month

Doesn't seem too bad.
You are missing a couple of things here, no guarantee this amount will be total annual expense, on the 62K on out of pocket you might incur as much as 6500 bucks a year in out of pocket expense per person. Second this number will go up every year until you both hit 65....you are getting older and insurance gets more expensive. ACA at the lower level drops your out of pocket to a very low number.
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Old 06-22-2016, 06:43 PM   #14
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You are missing a couple of things here, no guarantee this amount will be total annual expense, on the 62K on out of pocket you might incur as much as 6500 bucks a year in out of pocket expense per person. Second this number will go up every year until you both hit 65....you are getting older and insurance gets more expensive. ACA at the lower level drops your out of pocket to a very low number.

Hmmm. I reran the ACA quote pretending I was 10 years older and the premiums were about the same. Dang I wonder how much I should worry about insurance. In the first 50 years of my life I have only been to the doctor maybe 3 or 4 times for routine issues. Is this really gonna all of a sudden change during the next 15 years?
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Old 06-22-2016, 07:15 PM   #15
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Yes you should budget for the worst case out of pocket and premium. Things can change in an instant and ruin your best laid plans.

Plenty of examples on these forums. Do you have a prostate, a back that may go bad, problems with the wife's lady parts, an accident.

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Old 06-22-2016, 07:23 PM   #16
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Hmmm. I reran the ACA quote pretending I was 10 years older and the premiums were about the same. Dang I wonder how much I should worry about insurance. In the first 50 years of my life I have only been to the doctor maybe 3 or 4 times for routine issues. Is this really gonna all of a sudden change during the next 15 years?
Well "they" say the ACA premiums for all brackets will go up about 10% this year.....as a 63 year old I can tell you there is always some sort of age adjusted premium as you get older. IMO this is a huge issue. Even at 65 you will pay at least 300 bucks a month per person.
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Old 06-22-2016, 07:31 PM   #17
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Yes you should budget for the worst case out of pocket and premium. Things can change in an instant and ruin your best laid plans.

Plenty of examples on these forums. Do you have a prostate, a back that may go bad, problems with the wife's lady parts, an accident.

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I understand this but should I put the $13,000 out of pocket expense as part of the expected plan or should I just have an alternate plan that kicks when this stuff occurs. For example should I delay retirement or arrange our income for something that might happen? Wouldn't this lock in a bad thing versus just adjusting the plan after the bad thing happens.
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Old 06-22-2016, 07:41 PM   #18
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Certainly having a plan that could kick in to cover something like this would be preferable. Maybe a HELOC?

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Old 06-22-2016, 07:41 PM   #19
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At a minimum I would look at the policy you priced and put a max out of pocket for one person in your budget. 2 health care coverage +1 out of pocket every year.
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Old 06-22-2016, 08:57 PM   #20
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So what would a person do here ?
Would it be best to open a separate Roth for each conversion, to clearly be able to avoid any confusion on withdrawals ?

If you deposit a conversion into an existing ROTH, doesn't the money mix and the IRS consider x% of it converted money when you withdraw. Like how they do with IRA convert to ROTH when you have pre-tax and post-tax contributions ?
I think the instructions for form 8606 section 3 or 4 describe this with further detail in pub 590B.
First you spend down all your Roth contributions
Then you spend down all your Roth conversions
Then you spend the growth.

I retain my yearly 1099-R's that I receive in January and 5498s that I receive in May. These along with my tax return should tell the whole story.
I also retain my year end statements for the retirement accounts.

I was a bit taken a back when I realized that I would need all of this information going back, potentially, to the first year of Roth IRAs if I were to take penalty free Roth withdrawals before age 59 1/2.

If you haven't been saving 1099-Rs and/or 5498s then you can order an IRS Tax transcript (online or mail in the form) and I think they can go back up to 10 years. Just be sure to order the one that is for W-2/1099/5498 etc.

There should be no need to maintain separate Roth accounts in that the IRS prescribes the order of withdrawal as I have summarized above. Pub 590 and instructions for form 8606 will show the details.

There is no pro-rating of the funds, but rather just tracking of individual contributions and conversions to the Roth.

-gauss

p.s. you also need to track 401k (or other employer plan / qualified plan) rollovers deposited to the Roth. These are similar to Roth conversions but are not technically. 8606 makes reference to these too.
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