OK Got Some Money - Now What?

[almost_there]

I retired at the end of last year and am heading into a brave new world in 2020 (no more paycheck!!). I just sold a mutual fund in my IRA and withdrew the proceeds. Had them withhold 20%. After all the years of putting in this is the first time I have ever taken out. I got a nice big check and deposited into my checking account. So the question is: Now What? Looking to see what people that have lots of experience taking out do. I don't need all the money for immediate expenses. Do I spend some (splurge a little) and just re-invest the rest in an existing after-tax account? Is there any benefit to opening a new account with this money? Do I reinvest in the same security or could this be an opportunity to do some re-balancing? I know there is no single correct answer for this. Just looking for some opinions since I'm brand new at the taking money out part (although it seems like a lot more fun than the putting money in part)

 

[RunningBum]

Treat it like you would a paycheck. You probably withdrew a lot more than 2 weeks worth of money, but still, it's short term money so leave it in cash.

I keep a month or so of expenses in my checking account. The rest of my cash is in Vanguard money market funds, and a CD ladder which will trickle more money into my account every year for the next 4 years.

You need to think about a long term cash flow plan. Don't just move a big chunk of money out of your IRA and use that as a reason to splurge. Think about how much you need per year, how much you'll get from sources like social security, pensions, dividends on taxable accounts. Any shortfall would likely come from your IRA. Have a plan to withdraw from that.

There's a whole lot more to it like trying to manage taxes, possibly do IRA conversions to a Roth, and so on, but you need to start with the basics.

 

[NW-Bound]

... I just sold a mutual fund in my IRA and withdrew the proceeds. Had them withhold 20%. After all the years of putting in this is the first time I have ever taken out. I got a nice big check and deposited into my checking account. So the question is: Now What? Looking to see what people that have lots of experience taking out do. I don't need all the money for immediate expenses...

Aw, don't tell me you have not run across the "Blow Dough" thread.

Lots of ideas there.

 

[COcheesehead]

It is just me or does this sound like a ready, fire, aim moment?

 

[SumDay]

I used this post when I first entered retirement:
https://www.theretirementmanifesto.com/how-to-build-a-retirement-paycheck/

He just updated it to explain his rebalancing process:
https://www.theretirementmanifesto.com/how-to-manage-the-bucket-strategy/

Congrats & good luck!

 

[RunningBum]

It is just me or does this sound like a ready, fire, aim moment?

Yep. Take out a chunk of money (we weren't told how big), then figure out what to do with it?

 

[Major Tom]

A bit more information would be useful. Is your IRA money your only source of income, or do you also have income from other sources, such as Social Security or a pension? When you say you sold a mutual fund in your IRA, how much was it? A dollar amount isn't necessary, but was it a month's worth of living expenses, 6 months, a year?

I tend to keep a year to 18 months of living expenses in a savings account, and transfer my "allowance" into checking on a monthly basis - just like getting a paycheck. Some folk keep more in cash or cash equivalents, others less. Generally speaking, any money you will definitely need in the next 2 or 3 years is best kept out of stocks, unless you have a good risk tolerance and/or know what you're doing.

 

[racy]

Here's an opinion:
My IRA is the bulk of our retirement portfolio. RMDs will hit us hard starting in 5 years. So, I have my bond funds' monthly dividends sent to my money market settlement account in order to whittle down my IRA. Then, I have an automatic monthly withdrawal from the MM to Ally checking for spending needs. (I set the w/d to be a little less than the added dividends so I can build cash reserves, too).
Happy retirement, almost_there!

 

[38Chevy454]

You need to think about a long term cash flow plan. Don't just move a big chunk of money out of your IRA and use that as a reason to splurge. Think about how much you need per year, how much you'll get from sources like social security, pensions, dividends on taxable accounts. Any shortfall would likely come from your IRA. Have a plan to withdraw from that.

There's a whole lot more to it like trying to manage taxes, possibly do IRA conversions to a Roth, and so on, but you need to start with the basics.

X2, it sounds like OP needs to have a better plan for income; and considerations for short term vs long term investments. At least form the information that was given in orig post.



almost_there, stay around and read a lot on the board here. You'll learn a lot and that education will help you make more good decisions and less poor decisions for your financial future. Not saying that your recent withdrawal was good or bad. Not enough info to give an opinion.

 

[almost_there]

OK, I understand that my question was pretty open ended. My excuse is that it was my first time and I was feeling a little giddy. I actually do have a plan and this was a step in the execution. A lot of my assets are in tax deferred accounts. I have not yet started to draw social security. My earned income for tax year 2020 will be very low (maybe even zero) so besides this withdrawal I will make a few more to pay the taxes in 2020. My take from the answers so far is to think of this money as income to be used over the short to medium term. I guess I automatically gravitated to thinking of ways to (re)invest it. Old habits die hard I guess.

 

[rk911]

we park some cash in an online bank (better rates) and other cash in our local bank (for immediate access).

 

[catii]

I keep a month or so of expenses in my checking account. The rest of my cash is in Vanguard money market funds, and a CD ladder which will trickle more money into my account every year for the next 4 years.

We did exactly the same thing, but our CD ladder is 5 years. Seems to be working just fine.

 

[rkser]

Interesting thread, will follow

 

[MI-Roger]

If your goal was to have steady income with minimal fuss and mess, I would have suggested purchasing an Immediate Annuity within your existing IRA account, and moving all investment dollars from the Mutual Fund to the Annuity.

• No taxes due on the withdrawal or transfer.
• Monthly paycheck, (this income is subject to taxes)
• No RMD requirement - money received from an annuity within an IRA excludes that IRA from RMD requirements, regardless of the amount received.
• No future wondering "What should I do to get money for the next few month(s)?"

I believe you have now 'tainted' the money by taking direct possession of the sale proceeds. However, you may still be able to re-invest the funds in a tax deferred investment that provides you with steady income if that is what you desire, and avoid/re-capture the taxes you already paid if the total length of possession is less than 60 days.
See an Expert!

 

[almost_there]

I believe you have now 'tainted' the money by taking direct possession of the sale proceeds. However, you may still be able to re-invest the funds in a tax deferred investment that provides your with steady income if that is what you desire, and avoid the taxes you already paid if the total length of possession is less than 60 days.

-----------------------------
The main reason I sold the mutual fund (one of several in the IRA) WAS to pay the taxes in 2020 when I will have little or no earned income. I plan to do this again during 2020. The "problem" that I have is that while I feel I have sufficient assets ( approx $1.8M exclusive of paid-off house) most of it is in tax-deferred accounts (3 IRAs). My plan is to use the period of little to no earned income to pay the taxes and re-invest in after-tax investments. This seems like a good plan to me but I am willing to listen to why it might not be.

 

[Helen]

If you move the money into a Roth IRA it will grow tax free and there are no RMDs.

 

[almost_there]

Thank you Helen - I already have a small Roth IRA that I would love to add to. The research I have done so far though says that you are only eligible to make a Roth contribution if you have earned income.

 

[EastWest Gal]

Can you move the money into a back door Roth at this point? Can’t do a regular Roth with no earned income. But can he back door this Roth after the fact? Is there a time limit-60 days or something?

 

[MI-Roger]

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The main reason I sold the mutual fund (one of several in the IRA) WAS to pay the taxes in 2020 when I will have little or no earned income. I plan to do this again during 2020. The "problem" that I have is that while I feel I have sufficient assets ( approx $1.8M exclusive of paid-off house) most of it is in tax-deferred accounts (3 IRAs). My plan is to use the period of little to no earned income to pay the taxes and re-invest in after-tax investments. This seems like a good plan to me but I am willing to listen to why it might not be.

Yup, I have the same issue. The tax-deferred accounts are great to accumulate wealth but lousy to draw from later. I will be looking for a similar plan and will follow this post. Initially I thought your question was looking for income replacement.

Since my target retirement date isn mid-year I will have earned income to facilitate the Std IRA to Roth IRA transfer - if this is a good plan for us.

 

[RunningBum]

Thank you Helen - I already have a small Roth IRA that I would love to add to. The research I have done so far though says that you are only eligible to make a Roth contribution if you have earned income.

But you can do Roth conversions anytime.

 

[bingybear]

Thank you Helen - I already have a small Roth IRA that I would love to add to. The research I have done so far though says that you are only eligible to make a Roth contribution if you have earned income.

You can add to the to the roth by doing roth conversions. Is that wise? It really depends on your situation. I have been converting to roth at higher levels than I had thought I would do.

Can you move the money into a back door Roth at this point? Can’t do a regular Roth with no earned income. But can he back door this Roth after the fact? Is there a time limit-60 days or something?

I don't think op can really do a pure backdoor roth if I caught it correctly. First he likely has an existing TIRA which means he will need to pay more taxes on the backdoor conversion step on a pro-rata basis. Also if he has has no earned income then he could not contribute to the TIRA


OP, you should look into roth conversions. Sometimes it is a good thing to do. It depends on your situation.

 

[almost_there]

I do have the option of continuing the work for the company I retired from on a part-time basis. I have not yet really decided if I want to do that though. If I did I suppose that I could work enough hours to earn the maximum Roth IRA contribution amount ($7k) and continue to defer social security. So my 2020 earned income would be small keeping me in a low enough tax bracket that it would still make sense to withdraw from the TIRA and pay the taxes in 2020. Sounds like a way to have your cake and eat it too but obviously the downside is that it means you have to work (even if only part time). Will have to mull this over and crunch some numbers. Thanks everyone for the input.

 

[Oakster]

OK, I understand that my question was pretty open ended. My excuse is that it was my first time and I was feeling a little giddy. I actually do have a plan and this was a step in the execution. A lot of my assets are in tax deferred accounts. I have not yet started to draw social security. My earned income for tax year 2020 will be very low (maybe even zero) so besides this withdrawal I will make a few more to pay the taxes in 2020. My take from the answers so far is to think of this money as income to be used over the short to medium term. I guess I automatically gravitated to thinking of ways to (re)invest it. Old habits die hard I guess.

Why withdraw it if you are going to reinvest it? I think that is what is throwing most people for a loop!

 

[pb4uski]

It is just me or does this sound like a ready, fire, aim moment?

It's not you.

 

[pb4uski]

-----------------------------
The main reason I sold the mutual fund (one of several in the IRA) WAS to pay the taxes in 2020 when I will have little or no earned income. I plan to do this again during 2020. The "problem" that I have is that while I feel I have sufficient assets ( approx $1.8M exclusive of paid-off house) most of it is in tax-deferred accounts (3 IRAs). My plan is to use the period of little to no earned income to pay the taxes and re-invest in after-tax investments. This seems like a good plan to me but I am willing to listen to why it might not be.

I think that a better plan is to use this period of negligible taxable income to do big Roth conversions to avoid higher tax rates later once you start SS and any pensions. And let the Roths grow tax free.