Good Book For Planning Retirement Acct Distributions?

[haha]

I am getting ready to learn something about structuring retirement account distributions.

Since I hold lots of dividend and interest paying securities, and also stocks with unrealized capital gains in my taxable account, I don't think it would be smart for me to spend this one down, other than cash reserves if necessary.

My plan so far (and not knowing a lot about this topic) is to use cash in my taxable account if I need living money over and above the income thrown off by the securities in the account

If my ordinary income in any year is below the threshold for a marginal tax rate of 25%, I will do Roth conversions to that limit. Whatever I can't get converted before I have to start taking mandatory distributions will just have to come at me when I have to take it.

I should add that I have roughly 1/4 of the invested assets in a traditional IRA, and the rest in my taxable accounts.

I'll take SS at 70, unless there is a big-time market crash which makes me want all the cash I can get to invest.

Does this sound reasonable, or are there perhaps better ways? (We can let the SS issue alone! )

What book or books should I read?

Thanks for your ideas,

Ha

 

[chinaco]

The general approach seem reasonable.

I have been looking for such a book myself. The tax efficiency is the issue... #*&$ taxes.

 

[unclemick]

The general approach seem reasonable.

I have been looking for such a book myself. The tax efficiency is the issue... #*&$ taxes.

Me three. Now filing single - I'm taking an ass wupping tax wise starting last year. I play a little with ORP(Optimal Retirement Planner) but I understand it may be slightly out of date.

The ole balls in the air juggle - taxible/tax deferred/roth/trad/SS/cap gains/ divs - and at 64 the old when to croak issue/guess. Also the estate/spend your last buck dealy.

Man this ER is getting complicated - I could think myself to a frazzle!

heh heh heh - time for a cup of coffee.

 

[EngineeringMyFinances]

Stein & Demuth have a book on general retirement strategies (Yes, You Can Still Retire Comfortably!) but it sounds like you're more concerned about the tax aspects.

Have you thought about setting up a spreadsheet and projecting into the future different strategies for withdrawals?

I would think a little bit about converting a higher amount of tax-deferred money to Roth even if it pushes you into the 25% bracket. You'll wish that you had should tax rates increase from their current historical lows. For example, the 15% bracket is raised to 18% and you're taxed on 50% of SS for an effective marginal tax rate of 27%.

The spreadsheet would need to calculate taxes each year and end up being many columns wide. But once done, you could test out different sequences and see what happens.

 

[Ed_The_Gypsy]

It sounds like you have it right already, Ha.

I was cruising this board yesterday and followed a link to an article by William Reichenstein, "Withdrawall Strategies to Make Your Nest Egg Last Longer" that seems to cover it pretty well. Now, I can't find the link but I copied it into a Word document and printed it out. (DON'T bother Googling the title. You can imagine what 'last longer' brings back.) I will PM the article to you.

Gypsy

 

[Ed_The_Gypsy]

Can't figure out how to attach a Word document to a PM, so I just pasted the whole thing in.

>>>Andy, is there a way to send an attachment in a PM?

 

[chinaco]

It sounds like you have it right already, Ha.

I was cruising this board yesterday and followed a link to an article by William Reichenstein, "Withdrawall Strategies to Make Your Nest Egg Last Longer" that seems to cover it pretty well. Now, I can't find the link but I copied it into a Word document and printed it out. (DON'T bother Googling the title. You can imagine what 'last longer' brings back.) I will PM the article to you.

Gypsy

"Withdrawal Strategies to Make Your Nest Egg Last Longer" was published by Reichenstein for AAII. I think you need a login to get to it.

Here is another similar paper from William Reichenstein

http://www.tiaa-crefinstitute.org/research/trends/docs/tr100106.pdf

 

[Ed_The_Gypsy]

Good link, chinaco.

 

[WilliamG]

Is this the link?

//www.bwtpcpa.com/MRWA/newsletters/Retirement%20Withdrawal%20Strategies%20Apr%202007.pdf

 

[haha]

It sounds like you have it right already, Ha.

I was cruising this board yesterday and followed a link to an article by William Reichenstein, "Withdrawall Strategies to Make Your Nest Egg Last Longer" that seems to cover it pretty well. Now, I can't find the link but I copied it into a Word document and printed it out. (DON'T bother Googling the title. You can imagine what 'last longer' brings back.) I will PM the article to you.

Gypsy

Thanks, Ed.

Ha

 

[FIRE'd@51]

If my ordinary income in any year is below the threshold for a marginal tax rate of 25%, I will do Roth conversions to that limit. Whatever I can't get converted before I have to start taking mandatory distributions will just have to come at me when I have to take it.

Of course, I don't know the specifics of your situation, but my inclination would be to fill up the 15% bracket with some of the unrealized LT capital gains (taxed at 0% from 2008-2010) rather than do the Roth conversion (where you will pay 15% tax on the amount converted).

 

[Tadpole]

AAII - American Association of Individual Investors

PORTFOLIO STRATEGIES
Withdrawal Strategies to Make Your Nest Egg Last Longer
By William Reichenstein

In a series of three articles in 2005, I established three principles for tax-efficient investing....

 

[Gotadimple]

Tax Aspects --Retirement Funds

Also try Cracking Your Retirement Nest Egg by Margaret A Malaspina.
This one was published in 2003. I was hoping she'd upgrade with new changes in legislation, but don't see anything out on Bloomberg Press' website.

There's also a brief discussion in Ferri's book, Asset Allocation.

Regarding the ORP website -- I was out on that site last night and it's been updated to reflect IRS changes for 2003 -- latest update is July 2007.

-- Rita

 

[TexasGal]

I was wondering about the tax tables in ORP, too, since I use that calculator as much as I use FIRECalc. James Welch (I assume one of the creators of ORP?), said tax tables are current. I sent him an email and asked. Wanted to be sure that what I saw was good info.

 

[Ed_The_Gypsy]

WilliamG,

No joy. Can't open that page.

Ed

 

[lazygood4nothinbum]

WilliamG,

No joy. Can't open that page.

Ed

remove the space between 202007. & pdf towards end of posted address

 

[Ed_The_Gypsy]

Thanks, bum. Got it.

It is a summary of the original article--which is referenced and is here:
TIAA-CREF Institute | Tax-Efficient Sequencing of Accounts

Cheers

 

[haha]

Awfully Hard to Minimize Taxes

Spent a fair amount of time this morning looking over the helpful citations given here, and other articles at Fairmark, etc. I come away with the overall feeling that unless someone has saved a tremendous amount of money and not earned very much on it either in ongoing cash flow or in unrealized capital gains, we are all likely to pay way more taxes than we figured on, even with no changes in the tax code. I guess if one has enough index funds selling at about his/her basis then s/he can get tax advantaged funds out of these. But failing to make money is hardly a good investment strategy.

A single taxpayer using the standard deduction runs out of 15% bracket at about $40,000 income. Long term capital gains can be stacked onto that still at 15%, unless AGI gets high enough that you may start to lose some exemptions and deductions.

Since one needs about that much for a fairly Spartan existence in coastal USA, when any RMDs are added we're immediately into the 25% bracket. Then think about SS benefits. I am still looking at the worksheet in Pub 915 that deals with this, but so far it looks like 85% of it will be taxed at our marginal rate of 25%. And this is before RMDs-when both are coming which is only a few years for me, 85% of my SS benefit and my RMDs will be taxed at 25%.

A good strategy might be to emphasize qualified dividend income, municipal bonds, MLPs etc which give some tax shelter. Although these will help to control our marginal rates, they won't help for determining how much of the SS benefit is taxable, since a lot of special category income is added back in, and a lot of deductions are invalid for this purpose.

Well, the sun is out and I am tired of this rather dispiriting conclusion so I’m heading out for a while.

Enjoy your day, wherever you might be!

Ha

 

[Ed_The_Gypsy]

If one doesn't have much money, it is simple.

For those of us with no savings in taxable accounts, it is even simpler.

Ha, enjoy Seattle today. It is a great place when the sun is out.

Cheers,

Ed, in rainy Calgary.

 

[Delawaredave5]

we are all likely to pay way more taxes than we figured on, even with no changes in the tax code.

And I think we are going to see changes in the tax code - not favorable.

For my planning, I've been assuming my current, while w*rking, average tax rate will apply to portfolio distributions in retirement.

Hopefully this is conservative and I'll be suprised to the upside, but maybe not....

 

[packrat44]

Has anyone come across GOOD software on how to optimize distribution? It would be very benificial to a lot us. I am primarily looking for tax efficiency.

 

[samclem]

Has anyone come across GOOD software on how to optimize distribution? It would be very benificial to a lot us. I am primarily looking for tax efficiency.

It would sure be useful to me, too. Looking through Reichenstein's paper, it seems like the subject demands a fairly complicated calculator (it would need to account for the age you intend to take SS, etc. and ideally would even permit users to play with assumptions on various future tax rates on income/cap gains) . If something good is out there, it would be worth paying a few bucks for it.

 

[FinanceDude]

I plan on shifting all my qualified money to ROTH's over a ten year period before retirement.

I am pretty sure that Congress will modify the ROTH IRA so it is much less desirable in the future........

 

[Cb]

I plan on shifting all my qualified money to ROTH's over a ten year period before retirement.

I am pretty sure that Congress will modify the ROTH IRA so it is much less desirable in the future........

Will you be converting enough to take you out of the 15% bracket? I think converting to the top of the 15% bracket is a no-brainer, but I'm less sure about conversions at 25%.

Cb

 

[haha]

Will you be converting enough to take you out of the 15% bracket? I think converting to the top of the 15% bracket is a no-brainer, but I'm less sure about conversions at 25%.

Cb

Let's hope that as a financial advisor he makes enough to be well out of the 15% bracket anyway.

If not, he should probably get a financial advisor.

Ha