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Old 12-19-2007, 12:12 PM   #61
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Originally Posted by bamsphd View Post
Emphasis added above.

Tax advantaged saving tends to beat taxable saving over longer periods of time. Over short time periods the difference is minor. However, over long time periods, the money that would have been taxed away grows with tax free compounding, and eventually wins.
This assumes "growth and accumulation" is the goal. If money is being spent (withdrawn) the same conclusion/process will be inefficient.

What is most tax efficient going in (401k, Roth, Taxable accounts) is NOT the most tax efficient coming out (Roth, taxable accounts, 401k).
Originally Posted by bamsphd View Post

So I suppose the answer to this question depends heavily on your investment horizon, whether you expect to "spend down" your assets, and your current asset mix. I hope my safe withdrawal rate will leave me with a significant estate. Not so much because I want to leave a huge estate, but because as a couple our combined longevity risk is otherwise unacceptable. So my planning horizon includes my full life, my spouse's full life, and our heir's full life. If our investments do at least average, I hope to never touch the Roth money in my life, and perhaps never in my wife's life. Over my heir's life, the Roth tax advantage easily beats the alternatives.
This adds an inheritance factor into both the accumulation phase and the draw down phase not previously discussed to much detail.
Originally Posted by bamsphd View Post

If instead we were already retired, and my calculations indicated that we were in a race between life expectancy and spending down our portfolio, my calculations would be different, and more complex. I would probably be using something like Laurence J. Kotlkoff's planning software to optimize my withdrawals so that we always captured at least the standard deduction, and probably tried to level out our marginal tax rate over our combined life expectancy. I still think the software would probably recommend deferring Roth withdrawals for quite awhile, but it would also keep around some taxable and T-IRA funds to even out our tax burden.
My premise was to even out the tax burden over time while drawing down close to 100% of assets by time of death. Your goal is similar to this (even out tax burden). The lowest taxes are currently paid on Roth and taxable accounts, IMO to achieve this goal the Roth needs to be used to withdraw, as well as taxable accounts at same time, to keep tax bracket low for the 401k withdraws.
Originally Posted by bamsphd View Post

The gamble is that the rules may change. I'm betting that income taxes will stay around, that thanks to means testing tax rates will not go down much for millionaires, and that the Roth tax treatment will be maintained for existing accounts. That is certainly not a sure bet, but I've misplaced my crystal ball.
This gamble (rules changing) is another reason to draw down all 3 account types at same time. If a person relies on taxable accounts only, and the tax rates on those accounts goes to 50%, then it makes sense to change the withdraw technique.
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Old 12-19-2007, 03:32 PM   #62
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If you haven't already check out this calculator. Tries to optimize withdrawals using already taxed, IRA and Roth monies... bill

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Old 12-19-2007, 04:33 PM   #63
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Originally Posted by WilliamG View Post
If you haven't already check out this calculator. Tries to optimize withdrawals using already taxed, IRA and Roth monies... bill

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Don't bother, y'all. That's the link REWahoo gave way back on message 8 of this thread.
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