Allocating Withdrawals-Married Couple

[bizlady]

We took our first withdrawal this year as hubby hit 59.5 last year, and next year will take it from my account after I reach that benchmark.

But going forward, for those married/partnered: I was curious if most of you withdraw in equal amounts from each retirement fund, draw proportionately, or how you work that. We have always had one checking account and both consider it "our" money- but I wonder if there are considerations we should be looking at.

We both have good longevity in our families, and are in relatively good health now at 60 and 59. But DH is on an assortment of meds and very likely could end up in a nursing home someday for various reason. We do not carry insurance for that and will self insure. My retirement funds are about 30% higher than his. Our "plan" is budgeted for him at age 94 and me at 97. Thoughts?

 

[Souschef]

I assume you need the money now before SS or a pension kicks in. It really does not matter which account, as you will probably be filing MFJ.
You will get a 1099 form with a code of "7", which is normal withdrawal. When you hit 70 and 1/2, you will have to take the RMD out of each account based on your age.
My wife is younger than I, so she uses a different age to calculate her RMD for the same year.

 

[rodi]

What strategy did you use when you were accumulating? Did you contribute the same $ amounts? Or percentage of income?

 

[Dave J]

You might check into your state taxes. Here in Missouri, we have a weird tax formula that separates our income and deductions and then tax each separate. Since it is graduated when it becomes taxable from 1 1/2 % up to 6%, then 6% on up, I make sure we both have income to utilize the lower brackets. No since paying top rate on all if we can pay the lower rate on some. Also, we don't worry about the equal part, but try to pull out of whatever is paying less at the time.
You did not ask, but you might look into how much of your SS will be taxed when you start drawing. IMHO, some people(me)are better off pulling more out of IRA from retirement until starting to draw SS so as to lower the percentage of SS that is taxable.There are some income points when $1 from IRA raises taxable income $1.50 , so if you can avoid that it is a good thing.

 

[audreyh1]

Currently all our withdrawals are from taxable accounts which are joint.

We don't expect to draw from IRAs until RMDs hit, and the RMD will go to joint accounts. So for us it doesn't matter.

 

[Turn_the_Page]

Personally, I'd make the decision each year when I look at possible rebalancing to hit my target AA. If you're going to need to sell something anyway, this may point you toward one fund or another.

If your question is more about "fairness" or using both of "your" money equally, then I think you have to have a talk with your spouse and be sure you're in agreement. My DW's taxable account is the bulk of our taxable investments. This will be used first. We've already talked about this, as I was concerned that it would appear that we were spending "her" money and allowing "mine" to build up.

 

[donheff]

Currently all our withdrawals are from taxable accounts which are joint.

We don't expect to draw from IRAs until RMDs hit, and the RMD will go to joint accounts. So for us it doesn't matter.

Ditto. It is a lot simpler if you can view the entire pot as a single portfolio. In our case DW has large tax deferred accounts and I have a more modest TSP account and Federal pension. I keep the entire TSP in the bond portion which is like a money market on steroids. It serves as a "cash"/bond component of our joint portfolio. If I had to separately protect my individual interests I would need to diversify the TSP. Similarly DW would need to diversify within her retirement accounts. That would be a PITA and less effective overall. Even the potential for divorce (not remotely likely in our future) wouldn't need to affect the allocation decision. Holdings get split up in divorce - just as pensions and 401k's get tossed into the pool, historical decisions on how they were jointly allocated could be fairly easily analyzed and taken into account. That is why we pay lawyers the big bucks.

 

[Independent]

My knee-jerk reaction is that we've always managed funds jointly, so the name on the account doesn't matter to us.

But, I think you're asking a legal question. If one of you has such an extended stay in a nursing home that you start to look to Medicaid for help, where will you want your assets?

Googling turns up random sites that say whether the healthy spouse's IRA will be counted can be complicated and depends on the state. Maybe somebody here has some experience on this.

 

[Mulligan]

You might check into your state taxes. Here in Missouri, we have a weird tax formula that separates our income and deductions and then tax each separate. Since it is graduated when it becomes taxable from 1 1/2 % up to 6%, then 6% on up, I make sure we both have income to utilize the lower brackets. No since paying top rate on all if we can pay the lower rate on some. Also, we don't worry about the equal part, but try to pull out of whatever is paying less at the time.
You did not ask, but you might look into how much of your SS will be taxed when you start drawing. IMHO, some people(me)are better off pulling more out of IRA from retirement until starting to draw SS so as to lower the percentage of SS that is taxable.There are some income points when $1 from IRA raises taxable income $1.50 , so if you can avoid that it is a good thing.

Not only weird, but I also wouldn't accuse the MO tax brackets of being "progessive". The top tax bracket of 6% is reached at $9,000. The state thinks your a "1%er", if you flip burgers at McDonalds.


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[2017ish]

For us, there is no way we will be taking evenly. Due to my SAHD years and her higher income at all times, DW will have me beat 3 or 4-1 on retirement accounts, and our taxable investments pale in comparison.

Like others above, we will manage/spend as a single pool, subject to IRS requirements.

__________
P.S.--on the MO taxes. Yikes; bad memories. We lived in IL and DW (working there) made around 25 times what I made in my part-time academic job in Missouri. Having to fill the Non-Resident forms out and run her income and all of our expenses through it for percentage allocations was not enjoyable.

 

[Dave J]

Not only weird, but I also wouldn't accuse the MO tax brackets of being "progessive". The top tax bracket of 6% is reached at $9,000. The state thinks your a "1%er", if you flip burgers at McDonalds.


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A married couple with some SS income does not enter the "taxable income" bracket in Missouri until somewhere above 30-35k income, depending on deductions. It makes a few hundred dollars difference in what we pay to the state if we split to make sure we both utilize the lower brackets. A few years ago I realized I left some $$ on the table by not pulling from both accounts.
Better in my pocket than the govts.

 

[Dave J]

__________
P.S.--on the MO taxes. Yikes; bad memories. We lived in IL and DW (working there) made around 25 times what I made in my part-time academic job in Missouri. Having to fill the Non-Resident forms out and run her income and all of our expenses through it for percentage allocations was not enjoyable.

I had the same situation several years ago before moving to Missouri. I agree 100%, a real pain in the a**.

 

[Mulligan]

I had the same situation several years ago before moving to Missouri. I agree 100%, a real pain in the a**.

I would be better off being single, moving to nice little town like Columbia Ill. Write the property tax off my income and pay zero income taxes on my pension. Plus, I like all the nearby golf courses. Unfortunately, GF is not interested.


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[Animorph]

Lots of things to consider in the above posts.

I'm about 5 years younger that DW, our assets are roughly equal and mostly shared. Because of the age difference, my RMD's will always be higher than hers. So my tIRA's are being Roth converted first to minimize RMD's. When RMD's hit, we should pretty much be able to avoid any additional taxable withdrawals. But tIRA RMD's will be from the remaining funds in her accounts, with any additional funds coming from my Roth IRA's. So I'm ignoring his/hers balancing and trying to minimize taxes and maximize our spendable funds.

 

[Sunset]

We took our first withdrawal this year as hubby hit 59.5 last year, and next year will take it from my account after I reach that benchmark.

But going forward, for those married/partnered: I was curious if most of you withdraw in equal amounts from each retirement fund, draw proportionately, or how you work that. We have always had one checking account and both consider it "our" money- but I wonder if there are considerations we should be looking at.

We both have good longevity in our families, and are in relatively good health now at 60 and 59. But DH is on an assortment of meds and very likely could end up in a nursing home someday for various reason. We do not carry insurance for that and will self insure. My retirement funds are about 30% higher than his. Our "plan" is budgeted for him at age 94 and me at 97. Thoughts?

So if DH goes into nursing home in 15 years, will your State count your funds as available, or just count his. While you might pay for his care, it is important to have the choice or you could end up destitute after he is gone.

Otherwise, I personally would do 50/50 split or something a little more representative of the amounts saved like 60/40.

 

[bizlady]

What strategy did you use when you were accumulating? Did you contribute the same $ amounts? Or percentage of income?

We contributed to my IRA 3 years longer than his because when we started, we could not afford to contribute to both. We assumed I most likely would live the longest.After that, equal amounts went into the IRAI had a great 401k for many years where I could put in up to 10% and get a dollar for dollar match. Some years later the company was bought out and that ended being a nice sum. He had a defined contribution plan which also was nice and was contributed to on his behalf from his employer.

 

[kaudrey]

We aren't retired yet, but when we do (in 10 years when I am 57, and DH is 52, we hope), we'll use taxable first (which is my brokerage account and joint savings), then my IRA/TSP accounts, since I'm older, then later on his solo 401(k).