You probably know the conventional wisdom: When spending retirement savings, drain taxable accounts first, to give the money in tax-deferred 401(k)s and individual retirement accounts more time to grow, and leave tax-free Roth IRAs for last.
But with many nest eggs today smaller than they should be, a better approach, some financial advisers say, is to tap these accounts simultaneously in order to minimize taxes over time.
The key is to make full use of the lower federal and state income-tax brackets many retirees are in early in retirement. To further reduce taxes, it may make sense for those with after-tax incomes between $40,000 and $90,000 to defer Social Security, says James Mahaney, vice president of strategic initiatives at Prudential Financial Inc.
The article describes the top ways that early retirees on this forum plan their withdrawals, convert to Roths, delay their SS benefits, and reduce their taxes substantially. Yet, even so, the forum will get tons of questions and disbelief in the future because folks claim to never have heard of these tactics.
The ideas are embodied in the online calculator www.i-orp.com as well.
Interesting article but readers might want to adopt the qualitative aspects and do the math themselves. Looks to me like the author is mixing the concepts of AGI and taxable income and would be Roth converting into the 25% bracket even tho professing to the strategy of staying in the 15% one.
No substitute for doing math.
Do not read a technique and do it.
Read about a technique
then do the math
then read about another
then do the math
YMMV
LOL!,
Thanks for the link. I had lost it.
Rinse
One thing I found out the hard way was missing the income cut-off for Medicare. This year DW and I will each be paying an additional $40/month for Medicare because we didn't do our homework well enough. We just missed it due to some income items we misjudged. YMMV.
Hum... is this complicated, or could you elaborate some. I just started Medicare Advantage and don't recall any income limitations/penalty...Tight
LOL!,
Thanks for the link. I had lost it.
Koolau said:We just missed the cut off due to several moves we made this year - none of which made us FEEL like we had an income of $171K, but apparently, the way they look at it, we did have that much MAGI. YMMV, so be sure to check for yourself.
My point was to be certain to do the math up front. Our back-of-the-envelope calculation will cost us close to $1000 this year!
Read about a technique
then do the math
then read about another
then do the math
One thing I have noticed is that many of these retirment planners and advisors are based on a couple and their tax brackets. If one is single that trap needs to be avoided.