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I've spent down all my pretax money
Old 11-22-2023, 09:26 AM   #1
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I've spent down all my pretax money

All my money is now in IRAs (80% Roth, 20% Tax Deferred). Now I draw from my Tax Deferred accounts to a targeted taxable income and top it off drawing from my Roth. I can't think of any reason to move IRA money to my taxable account before I need to spend it, but just wanted a reality check.

Any reason I should consider creating a meaningful pretax balance (funded from IRAs)?
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Old 11-22-2023, 12:36 PM   #2
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I think you mean that you've spent all your post tax dollars.


One reason I would pull more money than needed from the T-IRA is to make your AGI at least equal to your standard (or your itemized) deduction. That is, withdraw at 0% tax rate.
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Old 11-22-2023, 12:41 PM   #3
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We've essentially had no taxable accounts for 3 years--just the checking account and Fidelity CMA to which we direct our monthly TIRA withdrawals for our spending. Haven't seen any reason to more fully fund those non-protected accounts.

If your withdrawals are indeed under the standard deduction, walkinwood has a good point. But, I'd be surprised if you lack that amount of taxable income.
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Old 11-22-2023, 12:46 PM   #4
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I like to keep $100k or so in post tax accounts just in case I need to make a big purchase someday. By withdrawing (for us via 72t) from a IRA some money each year, we manage to still pay near zero tax and if there is ever a year where we need a bigger fund, we can just pull it from our post tax stash without increasing either our federal tax rate or our free ACA super subsidized silver policy with $600/yr max OOP (valued at about $13,000/yr now)
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Old 11-22-2023, 12:47 PM   #5
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We retired with approximately 60% of our stash in Post Tax Cash Accounts and the other 40% in IRAs.

We have been retired for ~15 years (this time) and still only spend the CD returns on the Post tax cash and let the IRAs compound. 2 years ago, DW took her SS and this year I took mine. We still try to spend the returns on the cash but have struggled till this year when we have had a lot of home maintenance to deal with.

Early on in our careers we decided to save 50% in IRA and 50% in bank CDs. It seems to have worked out well for us.
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Old 11-22-2023, 12:54 PM   #6
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Originally Posted by walkinwood View Post
I think you mean that you've spent all your post tax dollars.


One reason I would pull more money than needed from the T-IRA is to make your AGI at least equal to your standard (or your itemized) deduction. That is, withdraw at 0% tax rate.
It's my regular taxable account - I should have made that clearer. In terms of taxes, I'm very in-tune with optimizing both short term and long term taxes and am definitely not leaving any "tax free" withdrawals on the table (and did quite a bit of Roth conversions).
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Old 11-22-2023, 01:16 PM   #7
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I do not see a reason to withdraw and prepaqy. You can always pull money from IRAs if you need to make a big purchase.

You want enough cash for emergencies as always but I bet you have that covered.
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Old 11-22-2023, 02:35 PM   #8
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Quote:
Originally Posted by qwerty3656 View Post
All my money is now in IRAs (80% Roth, 20% Tax Deferred). Now I draw from my Tax Deferred accounts to a targeted taxable income and top it off drawing from my Roth. I can't think of any reason to move IRA money to my taxable account before I need to spend it, but just wanted a reality check.

Any reason I should consider creating a meaningful pretax balance (funded from IRAs)?
No, because the Roth serves the same purpose.

What you might do is to do an early in the year Roth conversion for a large % of what you expect to withdraw for the year, live off of Roth withdrawals and then top it off with a Roth conversion to target in December.

For money that goes into and is withdrawn from the Roth in the same calenday year it is the equivalent of a tIRA withdrawal for spending but is tax free for a small part of the year that it sits in the Roth before being spent.

But really only very fine tuning but easy to do.
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Old 11-22-2023, 03:32 PM   #9
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I like to have have equities in taxable account for tax loss harvesting, qualified dividends, and tax gain harvesting. The stakes for me are pretty small and I enjoy messing with it. I would probably replenish my taxable account with withdrawals from non-roth IRA to do this if I ever spent it down to zero. My roth is for my daughter when I've moved on to the great dog park in the sky. YMMV
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Old 11-22-2023, 03:52 PM   #10
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The OP is apparently not yet doing RMDs. That would be a most excellent reason to move funds from tax-deferred to your taxable account.

That's what I'm doing and both my taxable account and my Roth IRA tend to grow from year to year now since I have excess retirement income...
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Old 11-22-2023, 07:34 PM   #11
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There is no reason to have a significant taxable account, but I'm struggling to envision the situation that it would have been best to make so many Roth conversions such that you are 80% Roth (maybe heirs in a high tax bracket in a high income tax state?).

To maximize spendable wealth, you are generally aiming for equalizing the marginal tax cost across time. Going so far that you now have minimal to no taxes, means you could have used some low tax space for conversions over the next few years when it seems likely you used higher tax brackets to make the conversions in the past.
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Old 11-22-2023, 08:12 PM   #12
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I trust p4fuski and others on the Roth IRA issues.

However, I'm lazy, the Roths seemed like too much trouble, and I think I'm permanently stuck in the 12-22% brackets, unless I die early and my DW lives for ever, and the stock mutual funds go to the moon--which is possible.
But I've withdrawn to the top of the 12% bracket from her IRA and my 403b. What we don't use is dumped into a taxable brokerage for emergencies, BTD spending or whatever. I'm slowing moving assets there into municipal bonds and a US and international ETF, to minimize taxes from it. It is now up to 10% of assets since we have by no means spent everything we withdrew over the last 6 years, in fact the taxable brokerage account is quite a c hunk now.

That said, moving unneeded funds to Roths, as many advocate here, is a better path. But as I wrote, I'm lazy and not all that convinced moving to Roths will help us much. If either of us live into our 90s and the stock market does well, the Roths will minimize taxes but we won't know how to spend it all. This is kind of in agreement with Fermian's post, but everyone's special circumstances should be the main decider, not a post like mine..
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Old 11-22-2023, 09:23 PM   #13
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There is no reason to have a significant taxable account, but I'm struggling to envision the situation that it would have been best to make so many Roth conversions such that you are 80% Roth (maybe heirs in a high tax bracket in a high income tax state?).

To maximize spendable wealth, you are generally aiming for equalizing the marginal tax cost across time. Going so far that you now have minimal to no taxes, means you could have used some low tax space for conversions over the next few years when it seems likely you used higher tax brackets to make the conversions in the past.
The IRS had a deal that if you converted in 2010, you recognized 1/2 the income in 2011 and 1/2 in 2012. I converted a bunch of IRA money in January of 2010 while the market (my portfolio) was still pretty low from the 2008 crash.
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Old 11-22-2023, 09:28 PM   #14
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Sounds like a good plan. What is your targeted taxable withdrawal? I would think take out enough to get your AGI up high enough to qualify for ACA with best possible subsidy then cover the rest of expenses with ROTH. Once Medicare age then take taxable up to top of standard deduction then ROTH for the rest.
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Old 11-22-2023, 09:31 PM   #15
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A down market like 2010's is a good time to convert because the subsequent rebound will be tax free. The rebound since 2010 has reduced the effective tax rate on my conversion back then to less than 1%.
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Old 11-22-2023, 09:48 PM   #16
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I should add that we are covered by a state employee health program, so all of the horrible stuff that many of you navigate is not an issue, for me, for now. I'm now on Medicare state Advantage, so now I am paying Medicare (horrors) since when DW is 65 I won't have to pay for her additional insurance (450$ which is cheap anyway). SO I don't need to worry about AGI, other than for LT capital gains, etc. So this may be a special case. I just add this since I know most of you are private sector and really have to worry about AGI.


You can get rid of this post, but really the U is the only nation where you have to navigate this bullshit. It is really horrible; none of you should have to deal with this, but it is what it is.

I'm just here in Texass for 4 weeks dealing with my sister's colon surgery, and i just think, why is it this complicated. Also, she is lucky most of it is covered.

Mods just delete this if it is bad, but ...... I just don't think any of this should be this hard. And I'm lucky I have enough money and a good wife who is willing to let me be here for 5 weeks dealing with this. I'm not worried about me or my wife, but 90 year old mother and sister are in Texass, and luckily older sis just got covered by Medicare. Otherwise we would be screwed.
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Old 11-23-2023, 01:55 AM   #17
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... I'm struggling to envision the situation that it would have been best to make so many Roth conversions such that you are 80% Roth ...

To maximize spendable wealth, you are generally aiming for equalizing the marginal tax cost across time. ....
80/20 makes sense to me.

We are currently almost 50/50 after 6 years of conversions and spending. Planning to get to 80/20 by age 70. Between currently promised social security levels and likelihood of one of us being widowed, this looks like the most likely way to achieve that of which you speak in the second paragraph. Still leaves us plenty in TIRA for assisted living and end stage medical, so as to take advantage of tax-deductible withdrawals.
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Old 11-23-2023, 06:50 AM   #18
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Now 4-1/2 years into retirement. We have done a few modest Roth conversions in the 22% bracket and will probably continue that until RMD's start in 8 years. But we haven't actually withdrawn and spent anything yet. If inflation wanders back down to 2%, we may never spend anything (because that's the level at which our pensions are fully COLA'd).
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Old 11-23-2023, 07:24 AM   #19
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Now 4-1/2 years into retirement. We have done a few modest Roth conversions in the 22% bracket and will probably continue that until RMD's start in 8 years. But we haven't actually withdrawn and spent anything yet. If inflation wanders back down to 2%, we may never spend anything (because that's the level at which our pensions are fully COLA'd).
You are a lucky person. I've had to withdraw, and spend, since the day I retired.
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Old 11-24-2023, 08:01 AM   #20
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Sounds like a good plan. What is your targeted taxable withdrawal? I would think take out enough to get your AGI up high enough to qualify for ACA with best possible subsidy then cover the rest of expenses with ROTH. Once Medicare age then take taxable up to top of standard deduction then ROTH for the rest.
This is my plan.
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