I've been focused on the expenses portion of our plan, but now starting to dig into the best strategy for minimizing taxes.
We recently did a 'check-up' with Vanguard where they laid out a 5 yr plan. It looks like they recommended automatically withdrawing 100% of our spending from our 401k and spending down this first. I'm wondering if this is just part of their standard plan or if there's a specific reason this is a better strategy.
Our largest spend is expected in the first few years of retirement, so taking out tax deferred dollars means a huge tax bill. By my calculations, not as huge as Vanguard is estimating, but still pretty big. Either way, it breaks my plan and takes us to a much lower success rate.
I've been trying to draw from taxable acts in the early years, when our spend is higher and we're in a higher tax band, then use projected RMDs in the later years. I think this has the effect of evening out withdrawals a bit and smoothing the tax burden.
Is it always the best strategy to empty our the tax deferred accts first? Want to be sure I'm not missing something...
(for context, we're 49 & 56. DH will start taking SS at 62, since we still have young kids at home. Projected spend after the kids finish high school is about 60% of todays spend, in part due to finished mortgage and in part due to kids being out of the house).
We recently did a 'check-up' with Vanguard where they laid out a 5 yr plan. It looks like they recommended automatically withdrawing 100% of our spending from our 401k and spending down this first. I'm wondering if this is just part of their standard plan or if there's a specific reason this is a better strategy.
Our largest spend is expected in the first few years of retirement, so taking out tax deferred dollars means a huge tax bill. By my calculations, not as huge as Vanguard is estimating, but still pretty big. Either way, it breaks my plan and takes us to a much lower success rate.
I've been trying to draw from taxable acts in the early years, when our spend is higher and we're in a higher tax band, then use projected RMDs in the later years. I think this has the effect of evening out withdrawals a bit and smoothing the tax burden.
Is it always the best strategy to empty our the tax deferred accts first? Want to be sure I'm not missing something...
(for context, we're 49 & 56. DH will start taking SS at 62, since we still have young kids at home. Projected spend after the kids finish high school is about 60% of todays spend, in part due to finished mortgage and in part due to kids being out of the house).