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Drawdown order for different types of accounts
Old 06-23-2021, 09:40 AM   #1
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Drawdown order for different types of accounts

Is there conventional wisdom that says what order to draw down your different types of savings (taxable, IRA, and ROTH)? I've done some analysis that says to always use up taxable savings first (to defer taxes as much as possible), and Roth last (to let it grow as long as possible). Is this always the best strategy?
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Old 06-23-2021, 09:47 AM   #2
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Yes, the conventional drawdown priority is taxable, tax-deferred and tax-free and IMO it is hard to go wrong with that, especially if it is supplemented by Roth conversions from tax-deferred to tax-free as your tax situation allows at a lower tax cost than later when you are colecting pensions, SS and RMDs.

Another option if taxable is in appreciated equities and retirement is very well funded is to leave taxable alone, withdraw from Roth and then do Roth conversions from tax-deferred as tax situation allows to refill the tax-free. The play is that heirs get a stepped-up basis when you die so a hope that taxes on those unrealized gains never happen (assuming that stepped up basis is still around).
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Old 06-23-2021, 09:47 AM   #3
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That's the strategy for early retirees since you can't easily withdraw from tax-deferred before 59-1/2.

But situations vary.

When I retired eight years ago at 63, I had a large tax-deferred account, a modest Roth IRA and essentially zero taxable account.
So all my withdrawals came from tax-deferred.

Nowadays, I still have a good sized tax-deferred 403(b), but a much larger Roth IRA, and a nicely growing taxable account where I stash excess retirement income...
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Old 06-24-2021, 01:23 AM   #4
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I would say there is no "conventional" wisdom, as so much depends on a person's particular financial situation. How old are you, what types of income do you have, what are the relative sizes of your taxable vs nontaxable accounts, what are your income needs, what unrealized gains exist in taxable accounts that would have to be realized upon withdrawal, what are your intended uses for making a withdrawal, and on and on and on.
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Old 06-24-2021, 06:33 AM   #5
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All of the above. In our situation, we will likely be doing Roth conversions and living off taxable for maximizing ACA benefits and lowering future taxes. Gradually we could use the principle of the Roths to supplement if needed, but not planning to do it.

We are 50 & 56 & need 10+ years of "bridge" monies once we actually start. Waiting for DW's comfort zone to kick in.
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Old 06-24-2021, 06:47 AM   #6
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I think iorp can provide suggestions:

https://www.i-orp.com/Plans/index.html
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