damonhowatt
Dryer sheet wannabe
- Joined
- Jul 14, 2015
- Messages
- 16
Hi all: Back again to tap the knowledge and experience of the forum members. I have a question on the mechanics of how to best utilize/drawdown assets after I leave work. This will be in March/April of 2018 after I achieve my goal of fully funding my HSA for calendar year 2018 with the over-50 catch up provision.
Assets:
1) Taxable Stock Account: $306,000 >>> most of this account is in stocks (90% LTCG status) and 10% cash. Approx. $5600 in dividends generated annually.
2) IRA Account: $414,000
3) Roth IRA Account: $112,000
4) Company 401K: $575,000 >>> 60% cash reserves fund/12% Vanguard Lg Cap Index Fund/28% in multiple Canadian bank stocks
5) Miscellaneous Cash: approx. $35,000
6) Home Equity: approx. $360,000
7) HSA Account: $10,000
8) Checking Account at credit union: ~ $30,000 in cash
Total Liquid Assets (i.e. excluding home equity and checking account):
~ $1,452,000
Estimated yearly expenses: $45,000
I’ve seen the following asset drawdown sequence frequently recommended for individuals who have achieved FIRE status:
1) Taxable accounts
2) Tax deferred
3) Tax free (Roth accounts)
My assets are over weighted towards the tax-deferred side of things: about 70% of total assets are either IRA or 401K. I know I need to convert IRA assets to Roth IRA assets on an annual basis after I achieve FIRE and before the age that RMD’s kick in. I have about 13 years until I must take an RMD distribution. I think that the limit to remain in the 0% LTCG tax rate (for a single filer) is $37,950. Am I correct in assuming the following: I can convert ~ $10,400 (limits of the std. ded. + pers. exemp.) + $32,350 (the remaining balance of the 15% tax rate for earned income) for a total of $42,750. The $5600 in LTCG dividends from the taxable account fills the remainder up to $47,950.
I know from reading here that taxes on the converted IRA/401K assets should not be paid out of the converted assets themselves but rather a second account. Which one of my other accounts should these tax payments come from? Should I sell the necessary amount from the taxable account for this tax payment; that sale of stock will generate a possible tax on it's own right. Or should I pay taxes from the checking account?
My assets are not currently structured to generate income via interest, dividends, or STCG sufficient to cover all of my expenses, so needed amounts would have to come from the sale of equities.
Please let me know if I need to include more information in order for you to advise. I look forward to your replies and advice.
Steve
Assets:
1) Taxable Stock Account: $306,000 >>> most of this account is in stocks (90% LTCG status) and 10% cash. Approx. $5600 in dividends generated annually.
2) IRA Account: $414,000
3) Roth IRA Account: $112,000
4) Company 401K: $575,000 >>> 60% cash reserves fund/12% Vanguard Lg Cap Index Fund/28% in multiple Canadian bank stocks
5) Miscellaneous Cash: approx. $35,000
6) Home Equity: approx. $360,000
7) HSA Account: $10,000
8) Checking Account at credit union: ~ $30,000 in cash
Total Liquid Assets (i.e. excluding home equity and checking account):
~ $1,452,000
Estimated yearly expenses: $45,000
I’ve seen the following asset drawdown sequence frequently recommended for individuals who have achieved FIRE status:
1) Taxable accounts
2) Tax deferred
3) Tax free (Roth accounts)
My assets are over weighted towards the tax-deferred side of things: about 70% of total assets are either IRA or 401K. I know I need to convert IRA assets to Roth IRA assets on an annual basis after I achieve FIRE and before the age that RMD’s kick in. I have about 13 years until I must take an RMD distribution. I think that the limit to remain in the 0% LTCG tax rate (for a single filer) is $37,950. Am I correct in assuming the following: I can convert ~ $10,400 (limits of the std. ded. + pers. exemp.) + $32,350 (the remaining balance of the 15% tax rate for earned income) for a total of $42,750. The $5600 in LTCG dividends from the taxable account fills the remainder up to $47,950.
I know from reading here that taxes on the converted IRA/401K assets should not be paid out of the converted assets themselves but rather a second account. Which one of my other accounts should these tax payments come from? Should I sell the necessary amount from the taxable account for this tax payment; that sale of stock will generate a possible tax on it's own right. Or should I pay taxes from the checking account?
My assets are not currently structured to generate income via interest, dividends, or STCG sufficient to cover all of my expenses, so needed amounts would have to come from the sale of equities.
Please let me know if I need to include more information in order for you to advise. I look forward to your replies and advice.
Steve