Tax Efficient Withdrawal Strategies

[chinaco]

Many of you are familiar with i-orp.

Here are a couple of articles on the topic of Tax Efficient Withdrawal Strategies.

FPJ article

Tax-Efficient Retirement Withdrawal Planning Using a Linear Programming Model

This appears to be a research paper from the same authors in the FPJ article.

http://www.academyfinancial.org/09Conference/09Proceedings/(3B) Coopersmith, Sumutka, Arvesen.pdf

Fidelity article.

https://guidance.fidelity.com/viewpoints-workplace/tax-savvy-withdrawals

 

[nun]

Those lucky enough to ER with substantial taxable funds can use the years of low earned income before retirement withdrawals are made to do IRA to ROTH conversions keeping the amounts rolled over in the 10% or 15% tax brackets. I aim to rollover around 300k in the 9 years I'll have before I start making retirement account withdrawals.

 

[Packman]

I agree with nun. One benefit of ER is that tax strategies can pay off big in the interim from ER to collecting SS, or taking RMD's at age 70. Many investors get all hung up about reducing investment costs by a few basis points (although this is still very important), tax savings stratagies can bring a 10% or more savings. Each individual situaton can be unique, so it pays to think it through or see a tax advisor, if need be.

 

[chinaco]

That is our plan.

 

[LOL!]

And all the tax-loss harvesting that you did in 2008 and 2009 means that withdrawing from your taxable accounts is essentially tax-free anyways.

 

[jebmke]

And all the tax-loss harvesting that you did in 2008 and 2009 means that withdrawing from your taxable accounts is essentially tax-free anyways.

Right, I'm never paying CG tax again.

 

[Lsbcal]

Probably people know this already. Assuming you've done Roth conversions and have a bundle in it now, it's good to produce a table for yourself with your tax deductions thrown in using TurboTax. Columns of interest could be:
1) IRA withdrawals (income stream #1) in $10k increments maybe
2) SS that is taxable (from TurboTax 1040 result)
3) Roth withdrawals (tax free, income stream #3)
4) Fed tax
5) state tax
6) Fed marginal rate (from #4)
7) state marginal rate (from #5)
8) combined marginal rate (from #4 and #5)

We will be taking IRA withdrawals + SS + Roth, where Roth is set so as to keep the combined marginal rate low.

 

[Finance Dave]

This is sort of my plan as well. I plan to take 401k withdrawals (which by that time will be rolled to an IRA) only up to the 15% tax bracket top (currently $69k for joint filers), then top off any additional needed amounts with taxable funds, Roths, etc.

I'm sick and tired of paying nearly 40% of my income in taxes (combined federal, state, local, FICA, medicare, etc.)

Probably people know this already. Assuming you've done Roth conversions and have a bundle in it now, it's good to produce a table for yourself with your tax deductions thrown in using TurboTax. Columns of interest could be:
1) IRA withdrawals (income stream #1) in $10k increments maybe
2) SS that is taxable (from TurboTax 1040 result)
3) Roth withdrawals (tax free, income stream #3)
4) Fed tax
5) state tax
6) Fed marginal rate (from #4)
7) state marginal rate (from #5)
8) combined marginal rate (from #4 and #5)

We will be taking IRA withdrawals + SS + Roth, where Roth is set so as to keep the combined marginal rate low.