Withdrawals before RMDs?

[explanade]

Has anyone done withdrawals or considered doing withdrawals between age 59 1/2 and age 72 when you have to do RMDs?

Talking about both traditional and ROTH IRA and 401K accounts.

Seems the popular thing to do is ROTH conversions, paying lower taxes in their 60s to convert and then withdraw from the now converted Roth IRA accounts after age 72, benefitting from what should be appreciated accounts and tax-free withdrawals.

But maybe spending down some of the retirement assets in the 60s would allow you to delay taking social security (for bigger payouts) as well as be able to spend more when you're generally in better health, able to do more things with the money?

I tried a RMD calculator and the first year at least is about 6.5% of my 401k balance. At that rate, it would take almost 20 years to draw down the whole account. Of course you could withdraw more than the RMD in a given year but again, the question is whether you would be able to spend as much a decade later.

I searched and all you see are articles about taking it before age 59 1/2 and paying penalty or having to take RMDs at age 72.

No Boggleheads links or anything like that about people weighing whether to spend the money vs. doing ROTH conversions, for example.

I guess going the Roth conversion route would provide better longevity insurance, in case inflation continues to be high or some big expenses are needed in your 70s or 80s.

 

[audreyh1]

Some people here have drawn on their IRAs for living expenses as soon as eligible and before RMD age rather than spending their after tax funds.

 

[steelyman]

I’ve been making withdrawals from both traditional and Roth IRAs since eligible (59-1/2 for penalty-free).

I don’t think that’s the best approach for most. It depends on your personal circumstances.

 

[USGrant1962]

I plan for withdrawals from tIRAs from age 61 or 62 through age 75 to help levelize taxes. I haven't worked out the specifics but nominally half from tIRA and half from taxable accounts to keep us in the 22% bracket while drawing down tax deferred in advance of RMDs. Roth conversions are not too attractive due to the 8% Maryland income tax - we have an idea to move to PA some time in the future, which doesn't tax tIRA withdrawals.

For now my part time consulting is covering our spend, so levelizing is still just a plan.

 

[marko]

Some people here have drawn on their IRAs for living expenses as soon as eligible and before RMD age rather than spending their after tax funds.

Yes. I'm now age 70 but for the past 10 years my IRA withdrawals have far exceeded what my RMDs will be. "Because.....that's where the money is...."

 

[qwerty3656]

Just turned 59 1/2 - plan to live off IRA withdrawals (both Roth and regular) and not take Social Security until I'm 70.

 

[Dtail]

We withdraw from my IRA, convert to Roth on my DGF IRA and also withdraw from after tax funds in our 60's.

 

[Spock]

I'm doing IRA withdrawals in order to have enough income to qualify for ACA health insurance instead of MedicAID. Right now I'm maxing out the 0% tax bracket. When I go on Medicare I'll start IRA withdrawals to max the 10% or 12% tax brackets or whatever rates are in place then. For me it's not about withdrawing from IRAs prior to mandatory RMDs to spend it but to managed taxes.

 

[jazz4cash]

Has anyone done withdrawals or considered doing withdrawals between age 59 1/2 and age 72 when you have to do RMDs?







I tried a RMD calculator and the first year at least is about 6.5% of my 401k balance. At that rate, it would take almost 20 years to draw down the whole account. Of course you could withdraw more than the RMD in a given year but again, the question is whether you would be able to spend as much a decade later.

Yes I am taking funds out of the IRA bucket and putting them into taxable and Roth accounts with 6 more yrs till RMDs.

How are you getting 6.5%? Seems too high. Is that percentage for the entire RMD (401k + IRA) divided by the 401k balance? At 72 I see 3.6% and it seem the RMD age should be higher by then.

 

[Winemaker]

After long thought and countless spreadsheet analyses, I take a withdrawal and a make a Roth conversion just short of the NIIT cliff. I have 6 more years before I collect SS at 70 and am trying to convert all of DW's tIRAs first as she hits RMD age a few months earlier than I, and will allow more headroom, if needed, to convert up to the new 75 year limit. Unless thing go to hell in a handbasket.

 

[Tom57]

I retired at 52, started SEPP at 55 years old, then withdrew as needed from my IRA until RMD started. I am 74 now. I usually can not spend all the RMD amount at this time. I started SS at 62 because I did not expect to live this long.
I am an example of GoGO, SlowGO and NoGo spending. I have no Roth and am at the NoGo stage of life.

 

[explanade]

Some people here have drawn on their IRAs for living expenses as soon as eligible and before RMD age rather than spending their after tax funds.

I’ve been making withdrawals from both traditional and Roth IRAs since eligible (59-1/2 for penalty-free).

I don’t think that’s the best approach for most. It depends on your personal circumstances.

I plan for withdrawals from tIRAs from age 61 or 62 through age 75 to help levelize taxes. I haven't worked out the specifics but nominally half from tIRA and half from taxable accounts to keep us in the 22% bracket while drawing down tax deferred in advance of RMDs. Roth conversions are not too attractive due to the 8% Maryland income tax - we have an idea to move to PA some time in the future, which doesn't tax tIRA withdrawals.

For now my part time consulting is covering our spend, so levelizing is still just a plan.

Yes. I'm now age 70 but for the past 10 years my IRA withdrawals have far exceeded what my RMDs will be. "Because.....that's where the money is...."

Just turned 59 1/2 - plan to live off IRA withdrawals (both Roth and regular) and not take Social Security until I'm 70.

We withdraw from my IRA, convert to Roth on my DGF IRA and also withdraw from after tax funds in our 60's.

I'm doing IRA withdrawals in order to have enough income to qualify for ACA health insurance instead of MedicAID. Right now I'm maxing out the 0% tax bracket. When I go on Medicare I'll start IRA withdrawals to max the 10% or 12% tax brackets or whatever rates are in place then. For me it's not about withdrawing from IRAs prior to mandatory RMDs to spend it but to managed taxes.

After long thought and countless spreadsheet analyses, I take a withdrawal and a make a Roth conversion just short of the NIIT cliff. I have 6 more years before I collect SS at 70 and am trying to convert all of DW's tIRAs first as she hits RMD age a few months earlier than I, and will allow more headroom, if needed, to convert up to the new 75 year limit. Unless thing go to hell in a handbasket.

OK good to know I'm not the only one thinking this way.

But I guess the more conservative thing is to convert it all and let it appreciate for several years and potentially have more money later on in life.

For me though, my 401k is most of my fixed allocation, so drawing down from it would really skew my AA towards equities.

So I have to figure something out.

 

[explanade]

Yes I am taking funds out of the IRA bucket and putting them into taxable and Roth accounts with 6 more yrs till RMDs.

How are you getting 6.5%? Seems too high. Is that percentage for the entire RMD (401k + IRA) divided by the 401k balance? At 72 I see 3.6% and it seem the RMD age should be higher by then.

I used this calculator.

https://www.schwab.com/ira/ira-calculators/rmd

The sum it generated for me was about 6.5% of the current 401k balance.

 

[RunningBum]

I approach Roth conversion and IRA withdrawals as separate events and decisions.

1) Determine how much tax room I have for Roth conversions. I do most of this in January, and top it off in December.

2) Decide how much I need to withdraw from the Roth IRA for living expenses. Although I might have a plan for the year, I would withdraw when the money is needed.

I've been doing 1) for years, so I have a large Roth balance. I haven't actually needed to do 2) yet other than taking out a portion for an SPIA. But it is part of my plan to use the Roth as needed.

Now, if 2) is greater or equal than 1) you might just skip the Roth conversion and do direct withdrawals, but since the timing for the events is likely to be different you could do both.

 

[explanade]

I guess it makes a significant difference between traditional and Roth, since there are tax implications.

 

[ncbill]

Just doing partial Roth conversions, paying the taxes due from taxable funds.

Hope to be done in the next few years, before age 59 1/2.

 

[steelyman]

I guess it makes a significant difference between traditional and Roth, since there are tax implications.

I’m not inclined to make the amazing/exacting calculations that some do to optimize everything (just not my “thing”) so I content myself with shooting for an even split between tax-deferred/tax-free balance in my retirement accounts.

In a lousy year like 2022 that meant my entire withdrawal was taken from tax-deferred and the tax will be paid. Tax-deferred contains mostly lower expected growth stuff.

 

[MarieIG]

I saw your post in the conversion thread, started to respond, but my response was a convoluted mess so deleted it.

What people do depend upon their particular situation and goals.

Now, I'm a never say never because I don't know what the future holds but as of now, we don't plan to pull money out of a Roth for living expenses before SS/RMDs. We are postponing taking SS to allow it to grow (longevity insurance), and to allow more room for Roth conversions.

I do not object to pulling some money out of a traditional IRA pre-RMD for living expenses and to mitigate the tax torpedo when RMDs kick in.

 

[DawgMan]

I'm still wrestling with this. I think it depends on your age (you and spouse) planned annual spend, types of accounts/balances available, and legacy/charity plans. Simple analysis would suggest the goal is to even out your max marginal annual tax rate over your lifetime... if you only knew what they were in the future. While I started Roth conversions this year up to NIIT, I think I may have to get more aggressive over the next five years thru age 63 (or longer). The good news is I have options (a first world pickle)... 1) I can live off my after tax $$ and Roth convert until age 75 staying in today's 24% bracket (most-likely scenario), 2) save my after tax $$ and pull all from my tax deferred accounts less naturally occurring dividends/interest/capital gains from my after tax accounts (about 50% of planned spend), 3) try and do some combo of the above. I'm coming to the conclusion that unless I do larger Roth conversions now, adding SS to RMDs at 75 may still have me in a higher tax bracket. IRMAA is the least of my worries. Plan is to make game time decisions on annual basis based on what I know. We all want to minimize taxes, but as others have said, we got the benefit when we made the contribution so at sometime you got to pay the MAN!

 

[SecondCor521]

I used this calculator.

https://www.schwab.com/ira/ira-calculators/rmd

The sum it generated for me was about 6.5% of the current 401k balance.

You're either entering your data wrong or doing the math wrong.

The divisor currently used to take an RMD at age 72 is 27.4. This corresponds, as another poster pointed out, to 100%/27.4 ~= 3.65%

A person born in 1950 turned 72 this year. If you use your calculator and put in a birthdate in 1950 and an IRA balance of $100,000, you'll see that the amount is just about $3,650, which is 3.65% of the balance.

If you have a spouse and are using the joint life expectancy tables, that can get you a smaller divisor and thus a larger distribution. But the smallest divisor you can get is if you're a 72 year old married to someone at least 104 years old, and even then the divisor is only 17.2, which would be 100/17.2 ~= 5.81%.

...

I suspect that you're not yet 72 and that you're adjusting your birthdate somehow that makes sense to you to get the tool to spit out what your RMD will be when you do become 72 in the future.

I note that an age of 86 years old, or a birthdate in 1936, does produce an RMD of about 6.5%.

So my final guess then is that you are about 72 - (86 -72) = 72 - 14 = 58 years old.

...

There's no need to adjust your birthdate though. Your RMD at age 72 will be your previous year ending balance divided by 27.4. It's that simple.

 

[5Miler]

During my first ten years of retirement I lived on after tax savings, severance and unemployment for 1.5 years until I reached 59.5 and could pull from my IRA. I spent the next 9 years with monthly distributions from my IRA for living expenses which I had also hoped would reduce my RMDs and help delay the need for SS.

The RMD issue remains as despite my withdrawals the IRA balance kept growing. Finally started SS last Dec at 68.5 years. Apparently 2022 arrived to help with my IRA balance worries. lol

 

[SecondCor521]

Has anyone done withdrawals or considered doing withdrawals between age 59 1/2 and age 72 when you have to do RMDs?

Talking about both traditional and ROTH IRA and 401K accounts.

Seems the popular thing to do is ROTH conversions, paying lower taxes in their 60s to convert and then withdraw from the now converted Roth IRA accounts after age 72, benefitting from what should be appreciated accounts and tax-free withdrawals.

Yes. I'm definitely considering a five year SEPP from age 54.6 to 59.6.

This would (a) reduce the size of my traditional IRA, (b) provide all of my needed cash flow during that time frame, and (c) essentially avoid capital gains taxes on sales from taxable that I would no longer need. The SEPP would mostly take the place of Roth conversions.

The popular thing you describe is what I'm currently doing. I'm considering switching to the SEPP thing because (a) my traditional IRA is a disproportionately large amount of my assets so I need to convert and or spend it down in order to level out my marginal rate the way it looks I will need to, (b) an SEPP will drain my traditional IRA about twice as effectively as the Roth conversions from an income tax point of view, and (c) I view an SEPP starting at age 54.5ish to be a low risk maneuver because I likely will know my spending, tax, and investment profile during that short five year time frame.

But maybe spending down some of the retirement assets in the 60s would allow you to delay taking social security (for bigger payouts) as well as be able to spend more when you're generally in better health, able to do more things with the money?

I'm delaying SS to age 70 regardless. Not for the bigger payouts, but because that is what opensocialsecurity.com says, and also to give me more years to do Roth conversions. Well, and because I can.

Spending more in my 60s is independent from both (a) when I take SS, and (b) where I get that spending money from. How much to spend in my 60s for me is mostly a function of (1) if I thought it would make my life better, and (2) my ability to do so based on my total FIRE stash, in which I include the NPV of my SS (again, based on taking at 70 per the previous paragraph).

I tried a RMD calculator and the first year at least is about 6.5% of my 401k balance. At that rate, it would take almost 20 years to draw down the whole account. Of course you could withdraw more than the RMD in a given year but again, the question is whether you would be able to spend as much a decade later.

See my other post about the 6.5% number. You should also know that the ways RMD work, the rate at which you are required to do RMDs generally goes up each year.

The point about being able to spend is a good one, though. I've seen people at my Dad's retirement place who have lots of income and very nice cars, but don't have the health or interest in going anywhere and may no longer be able to drive. So their spending drops down to mostly CCRC rent, taxes, and medical costs.

I searched and all you see are articles about taking it before age 59 1/2 and paying penalty or having to take RMDs at age 72.

No Boggleheads links or anything like that about people weighing whether to spend the money vs. doing ROTH conversions, for example.

I guess going the Roth conversion route would provide better longevity insurance, in case inflation continues to be high or some big expenses are needed in your 70s or 80s.

There have been lots of discussions here on Roth conversions to level out pre-RMD and post-RMD taxes in order to maximize after-tax spending. I think in most cases people in those conversations either (a) have other sources of spending, such as SS or pensions or taxable, or (b) implicitly understand that they may choose to spend from the Roth also. Several of them have posted essentially that here on this thread also.

Finally, in general, in the age range you specify, Roth converting then spending from the Roth as needed is pretty much strictly superior to spending from the traditional. It's the same tax-wise, and any unspent money is nearly always better off left in the Roth rather than taxable.

 

[jazz4cash]

I used this calculator.



https://www.schwab.com/ira/ira-calculators/rmd



The sum it generated for me was about 6.5% of the current 401k balance.

I don’t get 6.5%.

 

[DawgMan]

OP, here's another way to look at. Take inventory of your current retirement assets today and run the numbers withdrawing from your accounts as needed, taking into account expected taxes. If the numbers work to fund your life as desired pulling from your tax deferred accounts, then who cares, your good to go. I plan on being as "reasonably" tax efficient as I can, because that is my nature and I kinda enjoy the challenge, somewhat for sport. None the less, my numbers work regardless which path I take so I try not to over think it.

The numbers are important, but if they work, don't overthink it

 

[explanade]

You're either entering your data wrong or doing the math wrong.

The divisor currently used to take an RMD at age 72 is 27.4. This corresponds, as another poster pointed out, to 100%/27.4 ~= 3.65%

A person born in 1950 turned 72 this year. If you use your calculator and put in a birthdate in 1950 and an IRA balance of $100,000, you'll see that the amount is just about $3,650, which is 3.65% of the balance.

If you have a spouse and are using the joint life expectancy tables, that can get you a smaller divisor and thus a larger distribution. But the smallest divisor you can get is if you're a 72 year old married to someone at least 104 years old, and even then the divisor is only 17.2, which would be 100/17.2 ~= 5.81%.


...

I suspect that you're not yet 72 and that you're adjusting your birthdate somehow that makes sense to you to get the tool to spit out what your RMD will be when you do become 72 in the future.

I note that an age of 86 years old, or a birthdate in 1936, does produce an RMD of about 6.5%.

So my final guess then is that you are about 72 - (86 -72) = 72 - 14 = 58 years old.

...

There's no need to adjust your birthdate though. Your RMD at age 72 will be your previous year ending balance divided by 27.4. It's that simple.

Well if the RMD percentage is even less, that means a longer period of withdrawals at RMD rates to exhaust the 401k or IRA.