How to set up income from traditional IRA

[TwinkleToes]

So, I feel kind of stupid asking this question because I'm sure it's here somewhere, and, of course, everyone has such different circumstances, but how do you set up withdrawals from your traditional IRA to fund your retirement? There is all kinds of information out there for accumulating money but I can't find that much on how to set up a regular means of taking it out. I'm happy to read and study if someone has some good resources. I have read some stuff and it gets really complicated with tax considerations and types of funds.

By the way, we are only barely "early" retirees. DH was laid off at 64 and never found another job -- he is now almost 70. I am 64 and have just transitioned to part-time so I'm now semi-retired. So in a year or maybe less, we will have to set up something so we get a certain amount either annually or monthly. We are invested at Vanguard and Fidelity (my 401k).

Any advice or examples of you do?

 

[Just_Steve]

I have an automatic payment of $X,XXX a month before taxes from my 401k deposited in my checking account. I think they are called "Systematic Withdrawal" How to take withdrawals should be in the plan documentation.

 

[jazz4cash]

You should check with each custodian and see what they have available. My 401k is at Fidelity and when I log into the Fidelity website there is a section called "retirement distributions" under the "accounts and trades" tab. When I click there it walks me through all my options. Most can be set up online but some may require calling a rep. I have already set up links to my regular bank checking account. There are various options for monthly, quarterly, or one time distributions. You can also generally select a range of options for federal and state withholding.

 

[OldShooter]

I am at Schwab with a Schwab Bank checking account. I manually transfer money as I need it because my expenses vary quite a bit from month to month. Estimated tax payments, property tax payments, travel, etc. all make my needs "lumpy." Social Security and a tiny pension both direct deposit into the checking account, so that is my base. Most of my recurring bills are paid automatically from the account, too. I have a $10K credit line backing the account to cover overdrafts in case I forget to transfer money. I have never done it, but there is the option to set up once or twice a month automatic transfers to the checking from the IRA, with or without tax withholding.

Probably Vanguard and Fido have more or less the same thing.

Re income taxes our CPA just told us something very interesting: Taxes paid by withholding are considered paid uniformly during the year. So it is possible to pay 100% of the year's estimated income taxes in late December by drawing the amount from the IRA and specifying 100% tax withholding. No need for quarterly payments. I think we'll try that next year.

 

[Blue Collar Guy]

Re income taxes our CPA just told us something very interesting: Taxes paid by withholding are considered paid uniformly during the year. So it is possible to pay 100% of the year's estimated income taxes in late December by drawing the amount from the IRA and specifying 100% tax withholding. No need for quarterly payments. I think we'll try that next year.

+1, My tax guy after letting me pay penalties for a few years, set me up with quarterly payments this year. I remember he said I could just change my pension withholding's drastically from Sept-December and it would also qualify as a no penalty situation.

To the OP, Firecalc uses the idea of success if you took out the full years money on Jan 1st of the year. I dont know how tight your calculations were . This might be a consideration, otherwise I would take the money out as needed.

OH, BTW congrats on the semi retirement. You earned it.

 

[Sunset]

.... but how do you set up withdrawals from your traditional IRA to fund your retirement? ...... I have read some stuff and it gets really complicated with tax considerations and types of funds.

By the way, we are only barely "early" retirees. DH was laid off at 64 and never found another job -- he is now almost 70. I am 64 and have just transitioned to part-time so I'm now semi-retired. ....

How lucky you asked, as your H will need to withdraw RMD amounts, very soon, whichever year he turns 70.5 is the year he should start taking out RMDs. Since he is not 70 yet, it sounds like he will be 70.5 in 2018, so his RMD will start in 2019 (but check with account companies as they do this all the time) . It can be spread out through the year, or just take a big lump all at once and stick it in the bank to spend. There are some examples here on the IRS site:
https://www.irs.gov/retirement-plan...nt-topics-required-minimum-distributions-rmds

Each of your account companies will be able to tell you how much per year, each year and it changes each year. RMDs must be taken from regular IRA and 401K accounts (but NOT ROTH accounts).

Miss it and the penalty is 50% of what you should have taken out, plus you still have to take it out.

Your accounts are not part of the RMD until you turn 70.5 (and what you take out of yours does not count towards his RMD).

So if he has all his accounts at 1 place, then only 1 place will do the RMD.

 

[gayl]

Re income taxes our CPA just told us something very interesting: Taxes paid by withholding are considered paid uniformly during the year. So it is possible to pay 100% of the year's estimated income taxes in late December by drawing the amount from the IRA and specifying 100% tax withholding. No need for quarterly payments. I think we'll try that next year.

THANKS! I'll use this to pay taxes on my cap gains and avoid those irritating quarterlies. I'm all for simplification

 

[marko]

Re income taxes our CPA just told us something very interesting: Taxes paid by withholding are considered paid uniformly during the year. So it is possible to pay 100% of the year's estimated income taxes in late December by drawing the amount from the IRA and specifying 100% tax withholding. No need for quarterly payments. I think we'll try that next year.

This is a good idea when the market spirals up. If the market were to tank in December (see: 2008), it might not be so good.

We don't do quarterlies. We just pay the tax when we withdraw 2-3 times a year. If there's any underpayment we just pay the penalty which is often minimal.

 

[marko]

So, I feel kind of stupid asking this question because I'm sure it's here somewhere, and, of course, everyone has such different circumstances, but how do you set up withdrawals from your traditional IRA to fund your retirement? There is all kinds of information out there for accumulating money but I can't find that much on how to set up a regular means of taking it out. I'm happy to read and study if someone has some good resources. I have read some stuff and it gets really complicated with tax considerations and types of funds.

Any advice or examples of you do?

We automatically send our dividends, cap gains and any sale of equities over the year into a money market fund within our IRA.

Then when we get low, two or three times a year we shovel a certain amount over to our local bank's savings account. After tax funds first of course.

From there, we then get a weekly 'paycheck' through an automatic transfer from savings to checking.

We originally found that sending money directly from our IRA to our checking on a monthly basis didn't work well because of a 3-4 day delay in funds arriving and it got to be a hassle...checking twice a day to see if funds arrived.

 

[retired1]

I am at Schwab with a Schwab Bank checking account. I manually transfer money as I need it because my expenses vary quite a bit from month to month. Estimated tax payments, property tax payments, travel, etc. all make my needs "lumpy." Social Security and a tiny pension both direct deposit into the checking account, so that is my base. Most of my recurring bills are paid automatically from the account, too. I have a $10K credit line backing the account to cover overdrafts in case I forget to transfer money. I have never done it, but there is the option to set up once or twice a month automatic transfers to the checking from the IRA, with or without tax withholding.

Probably Vanguard and Fido have more or less the same thing.

Re income taxes our CPA just told us something very interesting: Taxes paid by withholding are considered paid uniformly during the year. So it is possible to pay 100% of the year's estimated income taxes in late December by drawing the amount from the IRA and specifying 100% tax withholding. No need for quarterly payments. I think we'll try that next year.

I like Scwab too. Having a bank account at the brokerage makes things a lot smoother. No need to "link"

 

[LOL!]

Any advice or examples of you do?

1. Login to your Vanguard.com account.

2. In the Search box, put "Automatic withdrawal" and go from there.



Or call Vanguard and ask about it.

 

[Jerry1]

I have read some stuff and it gets really complicated with tax considerations and types of funds.

Yes it does get complicated. I have been researching this myself (just started) and the tax considerations seem to be one of the most important financial decisions in retirement. Especially for someone like me where most of my retirement is in 401K's and IRA's just waiting to be taxed. I'm sure the easy part is the mechanical part - call brokerage, ask for money, withhold some money for taxes. Should be easy. The difficult part is the strategy.

Sorry I can't be of more help, but my plan is to seek advice on this. I went to a seminar (free) and the presenter had what looked to be a really nice software package that helped figure out the best cash flow in retirement. It considered your already taxed accounts, your tax deferred accounts, your social security, your required minimum distribution, the make up of your accounts (for cap gains) - all the things I've been reading about on this forum. I'm sure there are many financial planners with tools such as this. I'll need to find one that will work for a fixed fee/hourly rate as I have no intention of letting someone manage my portfolio (for a hefty fee) just to get this service. Maybe someone on this forum knows a good tool online or some software that can be purchased for this - similar to FireCalc where it takes in a bunch of inputs and helps with the modeling.

 

[OldShooter]

This [paying taxes at year-end via withholding] is a good idea when the market spirals up. If the market were to tank in December (see: 2008), it might not be so good. ...

Not to insult, but most people here understand that one does not plan to use long-term investments to pay short-term obligations. So for them, and me, the market going up, down, or sideways prior to year end is of zero concern. I'll just pay our taxes with treasury bills maturing in December or with cash that's already in a MM fund.

 

[TwinkleToes]

Yes it does get complicated. I have been researching this myself (just started) and the tax considerations seem to be one of the most important financial decisions in retirement. Especially for someone like me where most of my retirement is in 401K's and IRA's just waiting to be taxed. I'm sure the easy part is the mechanical part - call brokerage, ask for money, withhold some money for taxes. Should be easy. The difficult part is the strategy.

Sorry I can't be of more help, but my plan is to seek advice on this. I went to a seminar (free) and the presenter had what looked to be a really nice software package that helped figure out the best cash flow in retirement. It considered your already taxed accounts, your tax deferred accounts, your social security, your required minimum distribution, the make up of your accounts (for cap gains) - all the things I've been reading about on this forum. I'm sure there are many financial planners with tools such as this. I'll need to find one that will work for a fixed fee/hourly rate as I have no intention of letting someone manage my portfolio (for a hefty fee) just to get this service. Maybe someone on this forum knows a good tool online or some software that can be purchased for this - similar to FireCalc where it takes in a bunch of inputs and helps with the modeling.

Yes! This is exactly what I was asking about. Thanks to all who replied, I do appreciate it. I wasn't really having too much trouble with the mechanics of setting it up but was wondering more about the different results from taking money from one type of fund or another. The search continues, but I'm happy you mentioned that there are tools for this which for some reason I hadn't really thought about. Thanks again, everyone who responded.

 

[Scuba]

I'm also interested in a program/software to optimize distributions. We are still too young to withdraw any IRA money, but we have about 65% of our portfolio in a taxable account, 25% in traditional IRA's, with the remainder in previous employer controlled deferred compensation accounts. Traditional wisdom would say to spend down taxable account first but I'm not sure it wouldn't be better to fund our lifestyle with part IRA distributions and part taxable distributions.