Post Retirement Retirement vs Non-Retirement Brokerage Accounts

[Still Learning]

Coming up on 5 year retirement anniversary and this years discussion with our accountant/financial planner will be the pro and cons of these types of accounts. When we initially retired in 2019 we had a 50/50 portfolio of cash/investments. In November 2021 we decided to shift 80% of our cash to investment and CD accounts which worked well for us. CD interest this year will allow us to basically reduce our investment withdrawal to .0035% with no loss of discretionary spending or savings.


Having waited until post retirement to shift cash to investment funds it required us to open Brokerage Non-Retirement Accounts. As I understand it our Rollover IRA Brokerage Retirement accounts continue to be taxed only on withdrawn money vs the new Non-Retirement Accounts which are based on both gains and withdrawals. Our investments are about 70% in IRA Brokerage Rollover Accounts.


Any ideas on how to reduce the higher anticipated taxes on the Non-Retirement Brokerage Accounts?

 

[HawkeyeNFO]

More info please, such as your income (tax brackets are important to answer this).

 

[pb4uski]

...Any ideas on how to reduce the higher anticipated taxes on the Non-Retirement Brokerage Accounts?

It depends on your income. If you are in the 0% LTCG tax bracket then qualified dividends and LTCG on dometic equities are tax-free. Alternatively, if your taxable brokerage account includes fixed income you could consider muni bonds.

 

[jazz4cash]

I think the most widely used technique is Roth conversion but tax bracket details are an important to this evaluation as Hawkeye noted.

 

[retire48in2018]

Capital gains is key for non-retirement accounts

My choice is invest in a low turnover, low expense index fund.
That’s what we’re doing.

If you contribute to an HSA, you can have capital gains up to over $125k (MFJ) with no federal taxes. If your investments doubled (cost basis is half), that’s taking out $250k/year.

We don’t need that much - that’s a FYI.

 

[Still Learning]

Until the current tax season we have been in the 12% tax bracket. Our annual budget for all bills is $44K with no loans. SS & pension covers annual budget so with assumed 4% annual inflation and COLA adjustments that relationship should continue until RMDs start. Sufficient cash available for house repairs/updates and vehicle replacements until RMDs, have health insurance coverage in place and cash allocated for LTC. Income for 2023 was $71K and should be about $110K in 2024 due to new income from CDs and investments. To date investment withdrawals covered travel, which will now be provided through local bank CDs, allowing investment accounts to grow a bit faster. Our current NW at 66 is $2M not including house, vehicles/boat.

 

[obsessed]

My advice is to invest some time in understanding the tax implications of different types of income streams within you pre-tax (IRA) and post-tax (taxable brokerage) accounts (when, how). For instance, CDs and bonds may be better off in your pre-tax as the income will be taxed at ordinary rates anyway. As retire48 said, tax efficient index ETF funds may be more suited for your post-tax accounts where the gains will receive the lower capital gains tax.

Also, managing taxes is a long game. Optimizing for the current year may be sub-optimal for the long term. Depending on your age you might want to take a withdrawal from your IRA before RMDs hit to avoid a bigger tax hit later (or Roth conversions). This does require some modeling.

 

[pb4uski]

What is your target asset allocation (stocks/fixed income)?

What is your taxable/tax-deferred/tax-free? Sounds like 30%/70%/0%?

If your total income for 2024 is $110k then you'll be close to the top of the 12% tax bracket but will have a little headroom for 12% Roth conversions.

 

[GrayHare]

You can invest your non-retirement money in non-divdend-paying stocks, such as BRKB. They function like retirement accounts in that they generate no taxable income until you withdraw from them.

 

[pb4uski]

You can invest your non-retirement money in non-divdend-paying stocks, such as BRKB. They function like retirement accounts in that they generate no taxable income until you withdraw from them.

BRKA does the same thing.