Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Effective withdrawal stratagies
Old 03-16-2006, 06:02 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2006
Posts: 86
Effective withdrawal stratagies

Hi everybody,
Would it be tax efficient to roll 401K money into IRA vehicles that produced dividends that you could harvest as part of your withdrawal amount (ie. 4%). One of us would be 62.

Thanks, kbst
kbst is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Effective withdrawal stratagies
Old 03-16-2006, 06:13 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 10,252
Re: Effective withdrawal stratagies

Sure.
Here is a published article by Guyton and Klinger on withdrawal strategy:
http://www.fpanet.org/journal/articl...p0306-art6.cfm
for your further edification.
LOL! is offline   Reply With Quote
Re: Effective withdrawal stratagies
Old 03-16-2006, 06:23 PM   #3
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,391
Re: Effective withdrawal stratagies

Kbst:

Per you tax efficiency of the IRA or the 401K. They are taxed the same. You will pay ordinary income taxes on anything taken out of your 401K or your IRA.

You do not get preferred tax rates on IRA dividend distributions.
MasterBlaster is offline   Reply With Quote
Re: Effective withdrawal stratagies
Old 03-16-2006, 08:02 PM   #4
Recycles dryer sheets
 
Join Date: Feb 2006
Posts: 86
Re: Effective withdrawal stratagies

So there's no tax advantage to taking dividends from retirement accounts? If that's the case then the non retirement accounts should be set up to throw off dividends and the retirement accounts should hold the growth portion of the portfolio?

Kbst
kbst is offline   Reply With Quote
Re: Effective withdrawal stratagies
Old 03-17-2006, 07:05 AM   #5
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,228
Re: Effective withdrawal stratagies

Interest payers like bonds are good in the retirement account.

I had growth stocks in a 401k plan that had a big loss a few years ago. At the same time our taxable accounts did fine. Couldn't use the loss. Ever. The money is just gone. Then again, I never paid taxes on the money either.

__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Re: Effective withdrawal stratagies
Old 03-17-2006, 11:00 AM   #6
Recycles dryer sheets
 
Join Date: Sep 2002
Posts: 54
Re: Effective withdrawal stratagies

Martha,

Presumably the money you "lost" in stocks when their value dropped isn't just gone, but will return when the value of the stocks go up.* That kind of risk is the risk that money wont be available when you need/want it, a risk common to equities.* The other kind of risk is that your money will lose value because of inflation, a risk common to fixed income securities.* Balancing those two risks is an aim of asset allocation.

Now if you loaded up on trendy stocks near the end of of the last century, you may have lost money from overblown values that are unlikely to return anytime soon, but that wasn't wise investment practice then or now.* A well diversified portfolio with an asset allocation plan you maintain is a better way.

Just buying bonds is a foolish as chasing high-flying stock, IMO.

db
db is offline   Reply With Quote
Re: Effective withdrawal stratagies
Old 03-17-2006, 11:54 AM   #7
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,228
Re: Effective withdrawal stratagies

Quote:
Originally Posted by db
Martha,

Presumably the money you "lost" in stocks when their value dropped isn't just gone, but will return when the value of the stocks go up. That kind of risk is the risk that money wont be available when you need/want it, a risk common to equities. The other kind of risk is that your money will lose value because of inflation, a risk common to fixed income securities. Balancing those two risks is an aim of asset allocation.

Now if you loaded up on trendy stocks near the end of of the last century, you may have lost money from overblown values that are unlikely to return anytime soon, but that wasn't wise investment practice then or now. A well diversified portfolio with an asset allocation plan you maintain is a better way.

Just buying bonds is a foolish as chasing high-flying stock, IMO.

db
It looks like I didn't explain myself very well. The question was whether it makes sense to have the growth portion of a portfolio in retirement accounts. There always is a risk of loss, even for stocks that are not trendy. If you have a loss in a stock or a fund, and you decide it is appropriate to sell, you can't take that loss and offset it against income because it is in a retirement plan.

I of course agree that a well balanced portfolio is a good thing. The question is whether there should be preferences in having certain assets in tax defered retirement accounts like 401ks and different assets in taxable accounts. There are tradeoffs in these decisions. But, since interest payers like taxable bonds are always taxed at ordinary income rates, it makes some sense to have that portion of your portfolio in the 401k so you don't have to pay tax on the interest income until you pull it out.
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Do you agree with Bengen's "Layer Cake" withdrawal rate MikeK FIRE and Money 23 12-16-2006 10:50 AM
Withdrawal Rates in Paul Merrimans Book Hydroman FIRE and Money 17 05-10-2006 04:14 PM
Withdrawal rates - theory vs practice Roger_R FIRE and Money 56 01-17-2005 06:45 AM
"Is the Safe Withdrawal Rate TOO Safe?" Nords FIRE and Money 13 10-20-2004 10:36 AM
Withdrawal Rate Increases with Time? mccl FIRE and Money 26 05-22-2004 03:51 AM

» Quick Links

 
All times are GMT -6. The time now is 07:26 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.