I'm 60 years old employed and looking to FIRE very soon. I have a taxable account, a traditional IRA at Vanguard and a work 401k. I would like to go out before hitting 62, which account is best to draw from?.....thanks!
which accounts to draw on first?
- Thread starter geem
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Lawrencewendall
Full time employment: Posting here.
I think there are basic questions that need to be asked.
What are your minimum expenses?
What's the lowest tax bracket you could be to meet expenses, pay taxes and have a buffer?
Was the 401(k) employer matched and at what rate?
Do you have a an emergency fund?
Actual numbers would help but some people are uncomfortable disclosing that.
Welcome to the site!
What are your minimum expenses?
What's the lowest tax bracket you could be to meet expenses, pay taxes and have a buffer?
Was the 401(k) employer matched and at what rate?
Do you have a an emergency fund?
Actual numbers would help but some people are uncomfortable disclosing that.
Welcome to the site!
gcgang
Thinks s/he gets paid by the post
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- Sep 16, 2012
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Of course the answer is, "it depends".
In general you want to manage your withdrawals to incur the least adverse tax effect. Often this means leaving your tax deferred accounts to grow, and depleting your taxable account first. But, you need to balance current versus possible future taxable income to guess what is the optimum.
In general you want to manage your withdrawals to incur the least adverse tax effect. Often this means leaving your tax deferred accounts to grow, and depleting your taxable account first. But, you need to balance current versus possible future taxable income to guess what is the optimum.
https://www.i-orp.com/ - put in your data and it will recommend how to tax efficiently withdraw over time.
I would be in the 15% tax bracket. I guess my question is generally speaking in this situation its best to draw from the taxable account first and be taxed at 15%. I know to leave the traditional IRA alone but when I leave my work I will have the 401k there to either leave it there or move it somewhere. I was putting 15% in there with a match of 6%, that would end. Would you move the work 401k?
Fedup
Thinks s/he gets paid by the post
Use Turbotax, it's helpful to see your tax situation.
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I-ORP will look at your situation and recommend how to optimize taxes over your lifetime. The key things it will consider that you might not think about are (1) Required Minimum Distributions of your IRA's at 70.5 yrs old and (2) potentially making Roth conversions and/or using Roth money (tax free) to supplement other moneys for yearly expenses while keeping taxes down. One thing it will NOT consider is if your 401k has company stock that you can take Net Unrealized Appreciation on.
However, if you don't wish to run the numbers, the old rule of thumb is to spend down your taxable accounts first, tax deferred next (401k/IRA) and tax exempt (Roth) last.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
One key question would be what tax bracket would you expect to be in once you start SS and pensions? and once RMDs start?
If you expect to be in a higher tax bracket then, you may have an opportunity between when you retire and SS/pensions start to to Roth conversions at a low tax cost. I am in a similar situation... retired at 56 and was in a low tax bracket when I first retired but I expect to be in the 25% bracket once SS and pensions start. We have been living off taxable savings and doing Roth conversions to the top of the 15% tax bracket at an average federal tax cost of about 7% of the amounts converted... much better/lower than the 28% or more that I avoided paying when I deferred that income and also much better than the 25% or more that I would pay if I waited to take it out until later in life when I have SS and pension income.
Whether to leave the 401k or roll it into an IRA depends on what investment options there are and their cost. Also, does the 401k plan offer a stable value fund that pays a decent interest rate? .... if so, you may want to stay as you can't get a stable value fund outside a 401k.
