So all the years of accumulation has been a pretty easy concept for me to grasp... make as much money as you can, LBYMs, stash away as much as you can in tax deferred accounts/other investments, settle in on an AA, and as a self-employed high earner, employ any additional strategies to help minimize taxes. All simple enough. Now, as I get ready to flip the switch to draw down mode (age 56), I find myself scratching my head wondering what may be my best course of action(s). My (wife and I) simple draw down plan has me taking a min of $300K/year growing with inflation (this has significant discretionary spending as I have zero debt/reasonable fixed costs). With my draw down assets being split roughly 50/50 (taxable and tax differed accounts), my brain is a little scrambled putting together the best path...
A) Draw down from taxable accounts only until 59 1/2 or until it is exhausted before tapping tax deferred accounts? If I shut down my business 100%, I may have the option to start pulling from my 401K immediately which would make B) the first question. If I keep my some kind of part time gig going, then draw downs come from taxable accounts only until 59 1/2.
B) At 59 1/2, pull cash from 1) interest, dividends, capital gains that are naturally produced from taxable account, 2) $50K of return of capital from taxable account, 3) balance from tax differed accounts... thinking here is to avoid the NIIT and start minimizing future RMDs?
C) Roth conversions (I recently brought this up on another thread)... at the current tax rates and knowing the additional impact of NIIT, I am having a tough time seeing the argument to convert to the top of the 24% bracket as it would trigger the NIIT as well. Tell me why I should do the Roth conversions at effectively 28.8% (or higher)?
D) I have a plan for medical until medicare (age 65). I have not dug into the specifics on medicare costs yet, but anticipate I will be paying higher premiums one way or another based on income. Is there an real argument here for Roth conversions/other strategies to minimize my exposure come 65?
E) At this point, I really don't have SS factored into my modeling and will look at that as bonus cash flow (guessing 75% of benefit) at age 70. Should I be looking at this differently at this point and not dismissing it's impact?
F) Should I be shuffling the decks in my taxable and tax deferred accounts to be more efficient as I move to draw down mode? Of course, there would a sensitivity to unwanted capital gains if I got to aggressive here.
I get that these are all first world problems. Chances are taxes and the variables that affect SS will change over the next 10 - 15 years so I realize we can only plan based on what we know. None the less, I would rather plan smartly if I can without too many gymnastics.
A) Draw down from taxable accounts only until 59 1/2 or until it is exhausted before tapping tax deferred accounts? If I shut down my business 100%, I may have the option to start pulling from my 401K immediately which would make B) the first question. If I keep my some kind of part time gig going, then draw downs come from taxable accounts only until 59 1/2.
B) At 59 1/2, pull cash from 1) interest, dividends, capital gains that are naturally produced from taxable account, 2) $50K of return of capital from taxable account, 3) balance from tax differed accounts... thinking here is to avoid the NIIT and start minimizing future RMDs?
C) Roth conversions (I recently brought this up on another thread)... at the current tax rates and knowing the additional impact of NIIT, I am having a tough time seeing the argument to convert to the top of the 24% bracket as it would trigger the NIIT as well. Tell me why I should do the Roth conversions at effectively 28.8% (or higher)?
D) I have a plan for medical until medicare (age 65). I have not dug into the specifics on medicare costs yet, but anticipate I will be paying higher premiums one way or another based on income. Is there an real argument here for Roth conversions/other strategies to minimize my exposure come 65?
E) At this point, I really don't have SS factored into my modeling and will look at that as bonus cash flow (guessing 75% of benefit) at age 70. Should I be looking at this differently at this point and not dismissing it's impact?
F) Should I be shuffling the decks in my taxable and tax deferred accounts to be more efficient as I move to draw down mode? Of course, there would a sensitivity to unwanted capital gains if I got to aggressive here.
I get that these are all first world problems. Chances are taxes and the variables that affect SS will change over the next 10 - 15 years so I realize we can only plan based on what we know. None the less, I would rather plan smartly if I can without too many gymnastics.
I suppose in the end, the worst thing that happens is someone (wife and I, surviving spouse, or kids) are paying more taxes at some point, but that's because there is a pot a of money still around. I suppose it's better than a sharp stick in the eye!
