What's the best question you asked your CFP / Investment Advisor

[bobandsherry]

I think the number one thing is to understand how much you need from the 401k funds. If the amount and timing of your needs are consistent with the limitations of a 72t plan, that could be a reasonable option. The age 55 exception does not limit you in terms of amount or timing as long as you meet the separation from employer guidelines.

Our post tax investments would be able to support our needs ($80K/yr) until I would reach 59.5. However, being conservative I'd like to keep funds available for an emergency. So my initial thought is to fund us with SEPP from 72t and then make up difference with post tax investment withdrawls. I'd was figuring $35-40K from SEPP (which thanks to calculator you provided is well within the ballpark for us) and remainder from other investments. Unless my informtion is incorrect taxable income would then be minimized and keep our effective tax rate low. And if correct our future income stream would be generally the same for many years allowing access to ACA subsidy. I was looking at alternatively we could draw from non-retirement investments but later we'd pay much more in taxes as we'd be drawing $80K (adjusted for inflation) from our retirement account later. This would then put us in a higher effective tax rate. I think my info is reasonable but open to input from someone much wiser than me.

An excellent resource for you would be 72t on the Net | SEPP, 72t, and 72q Distributions | IRC Section 72(t). They have a calculator that lets you quickly determine how much you can withdraw using 72t guidelines.
Regards

Thanks for sharing, that confirms what I was expecting based on the balance in my 401K. I am fortunate that my 401K balance is from one employer, having worked my entire carrer with one company.

 

[bobandsherry]

I don't know...I usually try not to talk to myself.

What then might be one question you wish you would have asked yourself then

 

[bobandsherry]

Another option to avoid early withdrawal penalties is under the 72t plan, which involves an RMD type calculation, and requires min 5 years of withdrawals.

^^^ Yes, this is what I was referring to, though appears my terms have been wrong. I've been with same company for my career so only one 401K to be concered with.

After working for decades and paying taxes on steady income, it's difficult to grasp the tax saving opportunities in ER. There are many knowledgeable folks and posts here on the ER forum for these strategies.

I'm hopefully a quick learner and one day will be able to grasp the pebble from those with that wealth of knowledge, and more importantly, those who have experienced same.

The Boglehead post below opened my eyes to the new financial frontier of ER. Second link from Kitces illustrates the zero percent tax on qualified dividends and long term capital gains in the 15% bracket.

https://www.bogleheads.org/forum/viewtopic.php?t=87471

https://www.kitces.com/blog/underst...st-capital-gains-for-a-free-step-up-in-basis/

Thanks for sharing, those both have provided useful information that I hadn't considered fully.

 

[nwsteve]

"So my initial thought is to fund us with SEPP from 72t and then make up difference with post tax investment withdrawls. I'd was figuring $35-40K from SEPP (which thanks to calculator you provided is well within the ballpark for us) and remainder from other investments. Unless my informtion is incorrect taxable income would then be minimized and keep our effective tax rate low."
I think you probably have a good grasp of this so my comment maybe stating the obvious for you. In making your estimates you are treating all 401k withdrawals as ordinary income and taxable--correct?
There is a good article in the Nov Kiplinger pg 38 that goes into detail on what you want to do as well as some the pros and con of converting to 401k to TIRA--"Can I take regular withdrawals from my 401k when I retire." I looked for a link for you but it does not look like Kiplinger has posted yet. Most libraries carry the magazine so give it a view.
Nwsteve

 

[bobandsherry]

I think you probably have a good grasp of this so my comment maybe stating the obvious for you. In making your estimates you are treating all 401k withdrawals as ordinary income and taxable--correct?

With exception of the portion in my 401K that I funded as a Roth, to the best of my knowledge any withdrawls from my 401K would be taxable. So yes, I'm including all withdrawls as ordinary income. But hey, I could be wrong and always willing to learn more.

There is a good article in the Nov Kiplinger pg 38 that goes into detail on what you want to do as well as some the pros and con of converting to 401k to TIRA--"Can I take regular withdrawals from my 401k when I retire." I looked for a link for you but it does not look like Kiplinger has posted yet. Most libraries carry the magazine so give it a view.
Nwsteve

Thanks, I'll look for that article.

 

[skibum]

I found that the value of the health insurance subsidy was not compelling compared to the value of lower taxes by doing Roth conversions. Google "tax torpedo" in the google search box at the top of the page. I can convert about $60k a year and pay 8% now vs 25% if I didn't do any conversions so I save about $10k a year in taxes. The value of the subsidy if I did no Roth converisons is only about $5k a year... so I'm better off forgoing the subsidies. However, YMMV depending on your circumstances.
.

FWIW, our circumstances are family of 4 in California with modest itemized deductions filing married. Top of the 15% bracket is $74,900 in taxable income, roughly $108k AGI for this return. ACA cliff at 400% FPL is $97K MAGI. Staying under the ACA ceiling of $97k allows significant tIRA to Roth conversions for us, an additional $11k could be converted annually if we increased from ACA MAGI limit to the top of the 15% bracket. These additional conversions would generate annual tax savings of approximately 25% - 8% x $11k = $1,870. By staying under the ACA cliff we receive a tax credit of $945/mo = $11.3k annually. For us, the $11k tax credit is better than an additional $11k conversion opportunity. I hope this provides additional insight, of course YMMV depending on circumstances...

 

[pb4uski]

I can see for a family of 4 that it might be different since 400% of FPL is $97,000 vs $63,730 for a couple.

 

[Sarah in SC]

Just a quick note on credentials:

CFC isn't much.

CFA is the biggie, though you won't find those folks in the regular investing business very often. They are analysts, through and through. My brilliant and motivated young coworker completed her final CFA exam this year and it is a huge undertaking.

CFP is what I have, and it is very comprehensive, and you could certainly expect to find someone willing to be paid by the hour for a review and/or plan. Some planners with this designation are salespeople, of course, so be skeptical, always.

CPAs who carry the PFS designation can offer far more tax planning to the mix and have gotten the equivalent to the CFP in general planning.

 

[Happyras]

^^^

Thanks for sharing, those both have provided useful information that I hadn't considered fully.

I really got a lot out the reviewing the actual returns of the 8 portfolio models included in the following study.

2014 Update: Real-Life Retiree Investment Returns

Since most CFP's want to put you in active managed MF or use the MPT method for allocation, you can see some real life results favoring a simple model as outlined.