Draw down order between spousal accounts?

[Kings over Queens]

I feel like I should know the answer to this question with confidence, but don't.

Lets assume I hold 68% of our TIRA funds in my accounts and my wife holds the other 32% in her accounts.

Does it matter which accounts are drawn down first, hers or mine, during retirement, or is there a reason to spread the draw downs over both accounts? Assume we hold essentially the same mix of investments.

Assume we need $100,000 in income. Should I or rather does it matter if draw $68,000 from mine and $32,000 from hers, or can I draw the entire $100,000 from hers, or mine?

We are both same age and file as married/joint tax return.


(edited to add age based on Jerry's comment on RMD's)

 

[Jerry1]

One issue that we consider is RMD’s. Since DW is 5 years older and will be taking RMD’s first, we’ve been converting hers to her Roth first. I’ll have 5 extra years to draw mine down.

 

[Kings over Queens]

One issue that we consider is RMD’s. Since DW is 5 years older and will be taking RMD’s first, we’ve been converting hers to her Roth first. I’ll have 5 extra years to draw mine down.

Good consideration, thanks! Not an issue for us and I edited my post accordingly.

 

[sakowitzm]

RMD withdrawals are "person-specific." You must withdraw from your accounts, according to your age and factor and your wife must withdraw from hers, according to her age and factor.

 

[junkanoo]

I feel like I should know the answer to this question with confidence, but don't.

Lets assume I hold 68% of our TIRA funds in my accounts and my wife holds the other 32% in her accounts.

Does it matter which accounts are drawn down first, hers or mine, during retirement, or is there a reason to spread the draw downs over both accounts? Assume we hold essentially the same mix of investments.

Assume we need $100,000 in income. Should I or rather does it matter if draw $68,000 from mine and $32,000 from hers, or can I draw the entire $100,000 from hers, or mine?

We are both same age and file as married/joint tax return.


(edited to add age based on Jerry's comment on RMD's)

I've been looking at this very issue recently.

Even though you are both the same age, females tend to live about 2.5 years longer on average than males. You should also consider longevity factors in both your families, if there are differences. Additionally, there is a greater risk factor in your account because it is much larger. Another factor is whether there is a difference to how each of you feels about doing QCDs, i.e., being charitable.

The problem is ... if you guess wrong about which of you dies first, besides doing QCDs, there isn't much the second-to-die can do to avoid the "Widow's Penalty" from what's in THEIR account. Naturally, they could disclaim inherited assets, if that makes sense to them (at that point in time).

If you think things are reasonably a coinflip based on all those factors, I'd attack your account first, for sure. Then adjust as additional factors present themselves.

 

[Al18]

I created a retirement plan in a spreadsheet, and discussed it at length and made changes so it was fair to both of us. I think you need to consider all sources of income, including brokerage accounts, pensions, SS and annuities. Since retiring, we make changes to the plan in the Fall.

 

[TheWizard]

No ages given in OP so can't tell if in RMD territory or not.
If not , draw down the largest tax-deferred account first.
If you have offspring and lots of retirement income and assets, then set up wills to distribute a PORTION of the first to pass's tax-deferred to offspring then, rather than 100% to surviving spouse.

Due to lack of info, no way to tell how relevant what I said is...

 

[SecondCor521]

RMDs came to mind, but you and Jerry already covered that point.

The other possible wrinkle is if you're in perhaps a second marriage with your kids and her kids, and your estate planning leaves your IRA to your kids and her IRA to her kids. In that situation, and depending on where the other assets and income are, you might need to consider fairness / equality in the drawdowns so that your kids or her kids don't feel slighted.

Divorce really isn't an issue, because if you divorce you can shift assets between IRAs pretty easily as part of the divorce process.

If those situations don't apply, then since you're the same age and MFJ, it really doesn't matter AFAICT.

 

[Kings over Queens]

RMD withdrawals are "person-specific." You must withdraw from your accounts, according to your age and factor and your wife must withdraw from hers, according to her age and factor.

We are 58 and no where near RMD age.

 

[Kings over Queens]

If not , draw down the largest tax-deferred account first.

Please expand on this. Why the largest account?

 

[TheWizard]

Please expand on this. Why the largest account?

Depends on your overall numbers and your desire, if any, to lessen the eventual widow's tax increase, which I think is often overstressed about.

Anyhow, getting your tax-deferred down to roughly the same amount for each spouse makes it simpler to will 50% of the first spouse to pass tax-deferred account to offspring or other people, thus lessening the "burden" of excess income and taxes on the survivor...

 

[Exchme]

If you were different ages, then you would use the older spouse's IRA first as that money is not protected from taxes as long. In our case, we are the same age, but DW had a small t-IRA and I'm still earning over the Roth Contribution limit, so we converted hers first and now use her t-IRA for backdoor Roth contributions.

In your case, it makes no financial difference, you are going to both use the same RMD divisor each year, so it doesn't matter whether it's 68/32 or some other number, the total RMD will be the same size. It's just a personal choice. From a simplicity standpoint, if I thought the small account would be depleted by RMD time, then I might want to attack the little one so there's only one RMD. On the other hand, I don't think it would sell very well to drain "her" money and keep "your" money.

 

[Sunset]

...

Divorce really isn't an issue, because if you divorce you can shift assets between IRAs pretty easily as part of the divorce process.

...

I think divorce is an issue, it happens even to old people.

Consider, for the next 5 years OP draws down $100K per year from his account, so they can spend the money. Then divorce happens, it would be an uncertain thing that the he will get back $250K in IRA money from his wife as really that is simply past spending.
People don't often equalize out the past X years of happy marriage spending when divorce happens, they typically only equalize the existing joint property and increase in value of items.

So I vote take either proportionally or 50/50 from the accounts to get the spending amount.

 

[TheWizard]

I think divorce is an issue, it happens even to old people.

Consider, for the next 5 years OP draws down $100K per year from his account, so they can spend the money. Then divorce happens, it would be an uncertain thing that the he will get back $250K in IRA money from his wife as really that is simply past spending.
People don't often equalize out the past X years of happy marriage spending when divorce happens, they typically only equalize the existing joint property and increase in value of items.

So I vote take either proportionally or 50/50 from the accounts to get the spending amount.

Google QDRO...

 

[SecondCor521]

Google QDRO...

Which is what I was alluding to in post #8.

But Sunset does have a point - the QDRO isn't automatic. It'd be part of the negotiation / mediation / court process of dividing assets and might or might not happen depending on the whole situation.

 

[old medic]

One issue that we consider is RMD’s. Since DW is 5 years older and will be taking RMD’s first, we’ve been converting hers to her Roth first. I’ll have 5 extra years to draw mine down.

We are the opposite, Plan is to max out to 12%, 3/4 from mine each year.

 

[junkanoo]

I think divorce is an issue, it happens even to old people.

Consider, for the next 5 years OP draws down $100K per year from his account, so they can spend the money. Then divorce happens, it would be an uncertain thing that the he will get back $250K in IRA money from his wife as really that is simply past spending.
People don't often equalize out the past X years of happy marriage spending when divorce happens, they typically only equalize the existing joint property and increase in value of items.

So I vote take either proportionally or 50/50 from the accounts to get the spending amount.

This depends on the state on which they reside. Most states have an Equitable Distribution process. In equitable distribution, the judge would note that both parties effectively benefited (i.e., martital assets) from the drawdown from only one account, so those funds wouldn’t be “charged” against the withdrawing spouse.

In a Community Property state, your points are quite valid.

 

[Kings over Queens]

Thanks for all of the replies!