Should I deplete my post tax (LTG) brokerage account before dipping into tIRA?

[tenant13]

I did some very basic calculations and it seems that I could substantially save on taxes for the next few years if I exclusively dipped into my long term gainers for living expenses. Because up to approximately 50k (47,025 for 2024) could be taxed at 0%. Those LTG are instantly jumping into the 15% tax bracket if I mix in tIRA withdrawals (or any other ordinary income). Take a look at the calculations for 100k of taxable income:

https://imgur.com/a/ZKf0arH

. The attachment has 4 pages so click left and right.

I'm turning 62 in a few months and am not planning to take SS until I'm 70. If nothing changes it would be 40k+ a year. My RMDs are calculated at 80k a year. If I spend all my post tax $$ by then, this 120k would have become my unavoidable gross income (+ whatever I have in ROTH). It would have been only a few k above of what my calculations are now. And only those few k would have been taxed at 24% - negligible amount.

There's the whole ROTH conversion dilemma of course but it seems that I should not be doing it in the same year I'm taking advantage of 0% on LTG - or they get taxed at 15%. Given that NJ slaps me with high taxes on these conversions and that I would have to withdraw a lot from tIRA for living expenses, the savings would be limited to what I could get from the tax free growth in ROTH (no heirs so estate planning is not an issue).

So I'm thinking of withdrawing 50k of LTG from the post tax accounts and top it off with what I have in ROTH for tax free living now - for the next 8 years. I don't think my numbers will change significantly so I'm not looking into 36% taxes. Does that make any sense to you?

 

[PaunchyPirate]

I retired at 56 over 6 years ago. So I'm 62 (almost 63) now. I've been living off of cash I saved up plus withdrawals from my taxable account when needed. I plan on continuing this plan until 1) the taxable account runs dry or 2) I'm forced to withdraw from my tIRA by RMDs. The last thing I will likely touch is my Roth IRA (which is currently very small). I'm still not sure if I will ever do Roth conversions.

I have been lucky in that I haven't really had to sell many investments since retiring except things that I wanted to sell anyway to get out of (or reduce) the holding. And I did a big chunk of that a few years back. I've been living off the proceeds from that for the last few years. In 2026, I will likely have to sell something with capital gains again.

But I won't limit myself to the 0% capital gain bracket. The 15% bracket is still a pretty good deal.

 

[pb4uski]

Well at minimum you should do tIRA withdrawals or Roth conversions to create ordinary income at least equal to your standard deduction because that is 0% too. The rest is a judgement call and you can do a mix of both. Just remember, that when you die your heirs get a stepped up basis so those taxable account unrealized gains never get taxed, but tIRA needs to be withdrawn by your heirs within 10 years.

 

[tenant13]

Well at minimum you should do tIRA withdrawals or Roth conversions to create ordinary income at least equal to your standard deduction because that is 0% too. The rest is a judgement call and you can do a mix of both. Just remember, that when you die your heirs get a stepped up basis so those taxable account unrealized gains never get taxed, but tIRA needs to be withdrawn by your heirs within 10 years.

No heirs. And a great suggestion with the standard deduction! I also use my HSA to lower my income by 5.5k. Unlike with ROTH contributions, we are allowed to write it off unearned income.

 

[TheWizard]

Most people will be better off taking at least 5% of the money out of their tax-deferred accounts (tIRA and others) each year from the start of retirement. These withdrawals will generally be some combination of money for living expenses and Roth conversions.

There are exceptions. If your taxable account is large enough that you can live off it forever without depletion, then do that.
You can also donate all or most of your tax-deferred account RMD via QCDs, starting at age 70.5 actually, before RMDs take effect.

These exceptions don't seem to apply to the OP, who would be setting up for a significant Tax Torpedo with that conceptual plan...

 

[RunningBum]

I'd try to make a multiyear plan for which strategy leaves you with the most money, or allows you to spend the most money.

No heirs, you say, so what is your plan for your estate? Charity? Try to figure out if it's better to leave them appreciated stock or deferred income as part of your multiyear plan.

One idea might be to sell your smallest gainers (including losers or $0 gainers) to have funds to live on for a few years, to age 70 if you can. You'll have some income from investing the proceeds in a money market, t-bill, etc, but as you use that money for living expenses you'll reduce that. Meanwhile since your income is low and you've got plenty of spending money, you can do Roth conversions. See how that fits in with the multiyear plan.

If it looks like the difference between strategies is pretty minimal, just pick one and go with it. It sounds like you are solid any way you go. Perhaps sell that appreciated stock to get to a safer AA.

 

[TickTock]

OP,

0% income due to standard deduction and 0% LTCG brackets are both good things! IMO, the way to go about figuring withdrawals is to try to minimize lifetime taxes, not just the next 8 years or so.

 

[junkanoo]

I'm not with you on eating from your Roth account right now. To my thinking, that should be the last account touched in most circumstances.

I think you're letting the tax tail wag the dog. If you really are in the 0% category (or could be) I would rather you be in the 12% marginal tax rate by drawing down your T-IRA balance and rather than start with winners with large LTCG, I would start with positions showing losses (thus no taxes) or positions with minimal gains and let the winners continue their path.

 

[tenant13]

I'd try to make a multiyear plan for which strategy leaves you with the most money, or allows you to spend the most money.

No heirs, you say, so what is your plan for your estate? Charity? Try to figure out if it's better to leave them appreciated stock or deferred income as part of your multiyear plan.

One idea might be to sell your smallest gainers (including losers or $0 gainers) to have funds to live on for a few years, to age 70 if you can. You'll have some income from investing the proceeds in a money market, t-bill, etc, but as you use that money for living expenses you'll reduce that. Meanwhile since your income is low and you've got plenty of spending money, you can do Roth conversions. See how that fits in with the multiyear plan.

If it looks like the difference between strategies is pretty minimal, just pick one and go with it. It sounds like you are solid any way you go. Perhaps sell that appreciated stock to get to a safer AA.

Estate is of no concern. The last thing I'm going to worry about is what happens with my money when I'm dead; thinking about $ while I'm alive is already exhausting. The plan is to Die With Zero (and I'm refering to both money and regrets about not spending it

I have already sold losers and no-gainers, what's left are all gainers.

 

[tenant13]

OP,

0% income due to standard deduction and 0% LTCG brackets are both good things! IMO, the way to go about figuring withdrawals is to try to minimize lifetime taxes, not just the next 8 years or so.

 

[tenant13]

I messed up While calculating RMDs I completely forgot about 2 assets that are owned by my trad IRA: a pile of bitcoin and a condo in Mexico (still being built but almost ready). They almost double the value of my IRA today and I'm afraid that 10 years from now it will be "worse". Anyway, taking this into consideration I will almost certainly be thrown into 32% territory - with way more money I normally spend now and yes... a huge tax torpedo (60-70k).

So... as much as I hate taxes I think I need to bite the bullet and : 1) do the conversions, I will need cash to pay these damn taxes 2) stop caring about 15% taxes on LTCG 3) start spending more so I can run of money faster. 4) rethink waiting with SS until 70?

 

[Closet_Gamer]

I messed up While calculating RMDs I completely forgot about 2 assets that are owned by my trad IRA: a pile of bitcoin and a condo in Mexico (still being built but almost ready). They almost double the value of my IRA today and I'm afraid that 10 years from now it will be "worse". Anyway, taking this into consideration I will almost certainly be thrown into 32% territory - with way more money I normally spend now and yes... a huge tax torpedo (60-70k).

So... as much as I hate taxes I think I need to bite the bullet and : 1) do the conversions, I will need cash to pay these damn taxes 2) stop caring about 15% taxes on LTCG 3) start spending more so I can run of money faster. 4) rethink waiting with SS until 70?

So … random question:

Can you hold a non-rent producing condo/property in an IRA?

How do you handle RMDs when the time comes? Do you have to put a loan against the house to generate cash to pay the RMD and taxes?

Just curious.

 

[SnowballCamper]

So... as much as I hate taxes I think I need to bite the bullet and : 1) do the conversions, I will need cash to pay these damn taxes 2) stop caring about 15% taxes on LTCG 3) start spending more so I can run of money faster. 4) rethink waiting with SS until 70?

Yes, and I'm curious what you find out about RMDs from the condo...I suspect they force a sale, or an expensive loan.

 

[Texas Proud]

Just throwing out a thought... but IRAs are not supposed to have loans...

I do wonder what you do when you run out of actual cash assets... probably have to sell... but maybe to yourself...

 

[tenant13]

Just throwing out a thought... but IRAs are not supposed to have loans...

I do wonder what you do when you run out of actual cash assets... probably have to sell... but maybe to yourself...

They are allowed to get non-recourse loans.
You cannot sell that condo to yourself (or use it for your benefit in any way). It’s a prohibited transaction. The proceeds from sale must go back to IRA.

 

[tenant13]

Yes, and I'm curious what you find out about RMDs from the condo...I suspect they force a sale, or an expensive loan.

RMDs are possible. You must asses the value of the property every year and then pass the ownership of however much you want to yourself. While that is happening (if you split it over the years) you are not allowed to use the property in any way. It would be a prohibited transaction and trigger turning your condo into an equivalent of the IRA withdrawal for the entire amount.

 

[tenant13]

So … random question:

Can you hold a non-rent producing condo/property in an IRA?

How do you handle RMDs when the time comes? Do you have to put a loan against the house to generate cash to pay the RMD and taxes?

Just curious.

Well, you’re allowed to make bad investments within IRA. It’s like buying value losing stocks. But you’re not allowed to benefit from a property held by IRA. Or sell it to yourself.

 

[Chuckanut]

Well at minimum you should do tIRA withdrawals or Roth conversions to create ordinary income at least equal to your standard deduction because that is 0% too. The rest is a judgement call and you can do a mix of both. Just remember, that when you die your heirs get a stepped up basis so those taxable account unrealized gains never get taxed, but tIRA needs to be withdrawn by your heirs within 10 years.

PB4 makes good points.

Also, that taxable IRA can become a problem when you hit RMD age. Those RMDs may cause Medicare IRRMA rules to be invoked. FWIW, while I could not fully convert tIRA funds to Roth, the amount I did convert is paying significant tax dividends now and in the future.

 

[tenant13]

PB4 makes good points.

Also, that taxable IRA can become a problem when you hit RMD age. Those RMDs may cause Medicare IRRMA rules to be invoked. FWIW, while I could not fully convert tIRA funds to Roth, the amount I did convert is paying significant tax dividends now and in the future.

Yes, this all started dawning on me when I realized how badly I have underestimated the value of my tIRA held assets (made a comment above). I have 10 years to sort it all out. And now I'm thinking I should find a no-nonsense tax planner/strategist... Perhaps that's another thread.

 

[Exchme]

In the attachment, you have entered selling $100K with a purchase price of zero. That will overstate, maybe greatly overstate the taxes you owe. We have plenty of things with 20-60% gains, especially after the recent pullback.

The first year RMD is 3.6%, so if that's $80K RMD, we're talking about an IRA of $2.2M. If you are talking about inflation adjusted $, that will be a serious tax headache for a single person as you age. It means that you likely should be doing Roth Conversions now, not playing small ball, trying to have a few zero tax years and then get slammed with high tax rates, multiple levels of IRMAA surcharges and maybe NIIT later. With the progressive tax system, the way to minimize the lifetime tax bite is to shave the tops off the income mountains and fill in the valleys.

The first thing I would do is put my fixed income preferentially into tax deferred, saving taxable/Roth for stocks. That matches the taxation of the primary source of return for bonds (ordinary income) with the taxation of the IRA account and maximizes the amount of gains that you will only pay 15% on in taxable (and none in Roth).

Yes, sound like you need a planner. Hire one on a fixed price or hourly rate, avoid the AUM types, AUM fees are outrageous and go on forever, even after the need for planning is done. They should be evaluating the case where you spend all your money by the time you reach a great age, not a case where you spend just like you have been, which sounds like it is going to leave a large pile for distant relatives to blow on jet skis.

When you interview planners, you need to ensure your planner's tool can do what you need - bonds preferentially in tax deferred, consumptions smoothing/amortization based to spend your assets completely down by a great age and can also evaluate your current path of tax gain harvesting for comparison. Few consumer tools can do all that and many advisor tools don't either. No matter how smart and nice your advisor is, if their tool can't do the math, they can't help you.

 

[tenant13]

In the attachment, you have entered selling $100K with a purchase price of zero. That will overstate, maybe greatly overstate the taxes you owe. We have plenty of things with 20-60% gains, especially after the recent pullback.

The first year RMD is 3.6%, so if that's $80K RMD, we're talking about an IRA of $2.2M. If you are talking about inflation adjusted $, that will be a serious tax headache for a single person as you age. It means that you likely should be doing Roth Conversions now, not playing small ball, trying to have a few zero tax years and then get slammed with high tax rates, multiple levels of IRMAA surcharges and maybe NIIT later. With the progressive tax system, the way to minimize the lifetime tax bite is to shave the tops off the income mountains and fill in the valleys.

The first thing I would do is put my fixed income preferentially into tax deferred, saving taxable/Roth for stocks. That matches the taxation of the primary source of return for bonds (ordinary income) with the taxation of the IRA account and maximizes the amount of gains that you will only pay 15% on in taxable (and none in Roth).

Yes, sound like you need a planner. Hire one on a fixed price or hourly rate, avoid the AUM types, AUM fees are outrageous and go on forever, even after the need for planning is done. They should be evaluating the case where you spend all your money by the time you reach a great age, not a case where you spend just like you have been, which sounds like it is going to leave a large pile for distant relatives to blow on jet skis.

When you interview planners, you need to ensure your planner's tool can do what you need - bonds preferentially in tax deferred, consumptions smoothing/amortization based to spend your assets completely down by a great age and can also evaluate your current path of tax gain harvesting for comparison. Few consumer tools can do all that and many advisor tools don't either. No matter how smart and nice your advisor is, if their tool can't do the math, they can't help you.

I created these attachments to illustrate the difference in 3 types of 100k income: LTCG vs Ordinary Income vs mixture of both. But yes, you are right that if were to withdraw 100k from post tax accounts my LTCG would have been much lower (or I would have ended up with way more cash on hand).

I need a planner - or a crash course in financial planning. I also feel that I might be asking for too much on my level. People that have the tools and are skilled in that kind of optimizing likely work with much wealthier clientele.

Oh, and I don't have any bonds - never had - my "fixed" income is locked in Schwab Value Advantage fund.

 

[Exchme]

I need a planner - or a crash course in financial planning. I also feel that I might be asking for too much on my level. People that have the tools and are skilled in that kind of optimizing likely work with much wealthier clientele.

Your t-IRA is large enough that you may be able to increase lifetime spending by hundreds of thousands of $ with a good plan, so it's worth it to look into it and pay for it. Others more familiar with the advisor business than I am can maybe point you to reliable, non-AUM folks.

I've heard of the Garrett Planning Network for instance - that was originally started as excluding the Assets-Under-Management types, but there's so much money in AUM fees for advisors that even that group now accepts those kinds of overpriced leeches, so you have to be very careful. Note that AUM types intentionally muddy the terms, calling themselves "Advice-Only", which in their lexicon means they don't also rip you off with commissions, just the AUM charge. How nice of them.

 

[mrfeh]

I need a planner - or a crash course in financial planning.

This topic may seem overwhelming if you haven't dealt with it before, but at the same time, it isn't rocket science.

Do some reading. Post your portfolio over at bogleheads and ask folks for advice.

 

[sengsational]

This is the kind of thing where a model of all years is very helpful. There used to be i-orp, which provided a plan for all years, and the default solution was die with zero, and even spending every year. That tool is gone, but another linear programming model is available called owl planner. I haven't used it much, but it considers taxes and suggests Roth conversions, I think. Even if you can poke holes in the solution, it might help train you on how all the levers work; many people were surprised by the results of i-orp, which generated solutions with large, up-front Roth conversions. You could dial-back Roth conversions and see how much that even annual spending changed. The take-away for my situation was that putting a few principles into action got me most of the way there. In other words, avoiding the dumbest moves did most of the work to maximize available spending. The difference between that, and doing the dance perfectly was small.

 

[FREE866]

I was born in 1966 so RMD's wont be required on my regular IRA till I'm 75. I wonder if sometime down the road they eliminate RMDs.