What's your 401K Withdrawal Routine or Strategy - Monthly, Yearly, or Whenever?

[cyber888]

Hi folks. If you've retired - what's your withdrawal strategy ? Do you withdrawal monthly, once a year - beginning of the year, or end of the year, twice a year, or whenever you need to withdraw (when you need to replenish cash reserve, or when the stock prices are rising). Can you share ?

I'm retiring soon and my 401k is in Tiaa-cref mostly. I also understand it's best to transfer it to an IRA first, so you don't get that 20% mandatory withholding tax. I'm planning to leave most of my retirement funds in my 401K, but do not like the 20% witholding tax

If you withdraw directly from your 401K and subject yourself to the 20% withholding tax, do you withdraw in December, so it's not too far away to get your tax refund in April?

Thanks in advance for sharing.

 

[pb4uski]

My former employer's 401k didn't have a stable value fund or great options compared to what I could get in a tIRA, so I transferred all to a tIRA shortly after retiring.

I think that you could set up automatic monthly redemptions from your tIRA to your checking account (I know that you can do that with a taxable account because I've done it).

We are living off taxable account money. We have an online savings account that yields 0.5% that I have automated monthly transfers to the credit union checking account that we pay our bills from. Each December, I replenish it to be a year's worth of withdrawals + $20k.

I also do a sizeable Roth conversion (by coincidence for about what we spend in a year) each January, followed by a top up in December.

 

[Out-to-Lunch]

Are you over 59.5, so that you can freely access the money if you move it to a tIRA?

 

[cyber888]

Are you over 59.5, so that you can freely access the money if you move it to a tIRA?

I will be 59.5 next year, so yes - I will start withdrawing once I hit 59.5 or 60 yrs old.

 

[GravitySucks]

I had to keep 5 years expenses in my 401k when I first retired.
I withdrew quarterly taking from equities most times as that helped keep my AA balanced. The 20% withhold wasn't that far off actual owed. Think the largest return I got in that period was $1500 that I could have put in a high interest savings account and made $20.
If you withdraw a years worth in December will it put you in a higher bracket that year? E.g. taxes owed on all 2022 money's earned plus 2023 withdrawal.
Personally, I pay when I withdraw and I withdraw when I need it nowadays. Not really worth the hassle to keep a few extra bucks for a few more months.

 

[MRG]

When I retired 9 years ago at 56 we had a sizable taxable position that we just lived from. Certainly was great for ACA subsidies and our ease. I took a small yearly withdrawal from my Megacorp 401k using the rule of 55. I don't remember being forced to take any taxes but I could be wrong.

Today age 65 our taxable is largely gone and we make several transfers from our IRA to our checking. We turned off reinvestment of divs, and interest. Before the market went nuts I was playing cash covered puts with some cash in our IRA, right now I'm doing nothing with it. I don't withhold taxes till a final December withdrawal that's 95% taxes.

 

[OldShooter]

We spend our SS first of course, then withdraw from the tIRAs as we need supplemental cash. No method, really.

May and October get draws to pay real estate taxes. DW has some big charitable draws that we take as QCDs. Both of us average spending above just the SS, so a few draws a year to cover that.

Never any withholding. December gets big draws @100% withholding to bring us to the safe harbor payment requirement for feds and state.

 

[jollystomper]

I kept my 401K as it has very low expenses and a good stable value fund. We have no "need" to withdraw from it as expenses are covered by pension/cash/interest/dividends. My current strategy is to withdraw only to cover taxes from Roth conversions (from our tIRAs to our Roth IRAs) to avoid under withholding penalties. When that is completed in the next few years I'll have to come up with another strategy .

 

[Dash man]

We live off of taxable investments and a small pension. I collect social security, but it just goes into a savings account. We’ve only done Roth conversions with our pretax accounts with taxes paid from our taxable cash. Our Roth accounts haven’t been touched.
From our taxable accounts we withdraw dividends, use maturing CDs or sell a little stock if needed. We don’t have a specific withdrawal plan, and I just make sure our checking account doesn’t go under a certain amount.
I don’t know if we’ll ever need to touch our Roth accounts. DW will start collecting social security at 70 in 2026, so the Roth funds will likely go to the kids.
Once we’re done with Roth conversions our tax bill and IRMAA will drop significantly, so our spending will be mostly covered by SS and my pension.

 

[G-Man]

My former employer's 401k didn't have a stable value fund or great options compared to what I could get in a tIRA, so I transferred all to a tIRA shortly after retiring.

I think that you could set up automatic monthly redemptions from your tIRA to your checking account (I know that you can do that with a taxable account because I've done it).

We are living off taxable account money. We have an online savings account that yields 0.5% that I have automated monthly transfers to the credit union checking account that we pay our bills from. Each December, I replenish it to be a year's worth of withdrawals + $20k.

I also do a sizeable Roth conversion (by coincidence for about what we spend in a year) each January, followed by a top up in December.

If you are using the "Rule of 55", would moving your funds from your 401K to a traditional IRA work?

 

[pb4uski]

No, rule of 55 can only be used for 401k withdrawals, but that wasn't a factor for us since we were using taxable savings for spending.

 

[Winemaker]

I retired 10/14, DW in 6/15. Initially, I have kept $300,000 in my stable value fund, and only supplemented or pensions to bring us up to the same take home pay we had while w*rking. Monthly withdrawals. Too much w*rk. Now I anticipate the yearly income of pensions, rentals and t investments, and take a lump sum in January. Sold in 401k every once in a while to maintain a $300,000 stable value fund balance. Rinse and repeat, however this year we sold a rental. Used that cash to live on and Roth convert DW's 403b and tIRAs. DM passed away in 12/2021, will use that cash to live on an make further conversions in DW's tIRA and 403b, should be emptied in 3 years, and not kill the goose. Afterward, we might have 2-3 years to convert some of my accounts, enough not to kill goose, or melt the fat. Only trying to reduce the kid's inheritance at this point, by treading softly into 24% bracket. We are stuck there 'til hell freezes over.

 

[target2019]

Hi folks. If you've retired - what's your withdrawal strategy ? Do you withdrawal monthly, once a year - beginning of the year, or end of the year, twice a year, or whenever you need to withdraw (when you need to replenish cash reserve, or when the stock prices are rising). Can you share ?

I'm retiring soon and my 401k is in Tiaa-cref mostly. I also understand it's best to transfer it to an IRA first, so you don't get that 20% mandatory withholding tax. I'm planning to leave most of my retirement funds in my 401K, but do not like the 20% witholding tax

If you withdraw directly from your 401K and subject yourself to the 20% withholding tax, do you withdraw in December, so it's not too far away to get your tax refund in April?

Thanks in advance for sharing.

Both of my 401(k) accounts have been rolled over. I have enough cash in the account to make withdrwals whenever I need to.

 

[levindb]

When I retired in 2012, I set up monthly deposits into my checking account that matched my previous monthly take home pay. These monthly payments originally came from an after tax account, then from IRA, then from SSA, then from sale of a rental, and now back to coming from IRA. The constant has been MONTHLY.
When lumpy expenses come up we look at tax impacts of where to withdraw from. Occasionally we would use 0% credit card to spread lumpy expenses into the following year to help manage taxes and IRMAA.

 

[Montecfo]

We are living off taxable, but expect to do some Roth conversions. I would tend to be opportunistic on the timing, withdrawing when stocks are down to the extent possible.

 

[still_working]

As noted by my handle, I'm still working but a good friend does an annual withdrawal for the entire next year's expenses. Creates distance between his monthly burn and any immediate market volatility, and as he nears his next annual withdrawal he can defer or accelerate based on current market behavior.

 

[Out of Steam]

Withdrawals from 401(k) and traditional IRA mostly monthly, except for one small withdrawal which arrives quarterly.

 

[Iggysmom]

Right now, we withdraw dividends as they accumulate throughout the year. If and when we need more or less than that, we'll either sell some shares or reinvest some dividends.

 

[G-Man]

As noted by my handle, I'm still working but a good friend does an annual withdrawal for the entire next year's expenses. Creates distance between his monthly burn and any immediate market volatility, and as he nears his next annual withdrawal he can defer or accelerate based on current market behavior.

That seems like a smart method. However, I don't get the idea of getting next year's expenses in the previous year.

 

[still_working]

That seems like a smart method. However, I don't get the idea of getting next year's expenses in the previous year.

Fair point, and I don't know if he shared with me (or if he did, I can't recall). The difference between late in one year and early in the next is likely tax-related. Perhaps just a matter of timing on the first withdrawal that was carried over year to year.

 

[Niuatoputapu]

If I were single, I would have probably continued to draw from my tIRAs/401ks as needed and withhold income taxes every December. However, my wife suggested that we arrange a monthly draw that would mostly continue if something happened to me. That’s what we do. We have monthly automatic tIRA/401k withdrawals, with income taxes withheld, deposited into our checking account.

The amounts are greater than our monthly expenses therefore we periodically move excess cash to a savings account, and have that money available for large purchases including travel.

If something were to happen to me, 70% of the money would keep flowing. The other 30% could be restarted after my death, but is probably not needed. DW, with zero effort, should have adequate cash flow and adequate tax withholding for multiple years after my departure.

Although I would not have started the above without DW’s suggestion, now that it is happening I really like it. Putting this one thing on auto-pilot is a time saver, and provides comfort to DW and me.

 

[BuysToys]

We do an annual withdrawal based on our budget for the year. It's worked for us for six years now, so that's probably how we'll continue to do it.

 

[pb4uski]

As noted by my handle, I'm still working but a good friend does an annual withdrawal for the entire next year's expenses. Creates distance between his monthly burn and any immediate market volatility, and as he nears his next annual withdrawal he can defer or accelerate based on current market behavior.

We sort of do that in that I hold a year of withdrawals +$20k in an online savings account for liquidity and I replenish that account in December each year.

 

[PointBreeze]

We withdraw in December and use the money the following year. If you have taxes withheld, then you don’t have to pay estimated federal taxes, and I like not paying estimated taxes ?. This also helps us to stay within our budget, as the money is set aside at the beginning of the year. IRA withdrawals are about 25% of our budget, and are used for the more discretionary portion of our budget.

 

[BubbaChris]

We’re in our first full year of retirement and need to manage MAGI for ACA purposes. So I’m looking at expenses, tIRA withdrawals, and everything else on a quarterly basis. So far I’ve asked Schwab to withhold the 20% from our tIRA. The interest earned on that cash for a whole year wouldn’t buy me a dinner out, so I don’t mind letting the IRS hold it.

If I was expecting more IRS liability, I’d be careful about timing as I’ve seen other folks mention penalties for not having paid estimated taxes throughout the year.

Best regards,
Chris