Which account to withdraw from first?

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Which account to withdraw from first?

Postby runnergirl » Thu Apr 04, 2013 9:56 am

I have my new car fund rolled up in my asset allocation rather than in a segregated account. When I need a car, I'll just withdraw the money and then rebalance. Question is which account should I withdraw from? I have a 401-K, Roth IRA, traditional IRA, I Bonds, regular savings and checking account, and a taxable investment account (with long term capital gains). I am not 59.5 yet.
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Re: Which account to withdraw from first?

Postby Johm221122 » Thu Apr 04, 2013 10:22 am

401 maybe a loan, but probably not
Traditional ira, no way
Roth, probably not
I bonds, if any fixed rate no, but maybe other wise
Regular Savings, yes
Taxable, if little to no tax maybe, if tax loss yes
Checking, yes if you have enough there, itwould be first
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Re: Which account to withdraw from first?

Postby TN_INVEST » Thu Apr 04, 2013 10:38 am

Think Al Gore & Current TV.

Be mindful of your taxable income each year. You don't want to draw money from a taxable account and push yourself into a higher bracket (you might even find that you run in to those tax penalties).
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Re: Which account to withdraw from first?

Postby Default User BR » Thu Apr 04, 2013 11:08 am

I would finance it with a PenFed auto loan at 1.74% up to 60 months. Less if you buy a new car from their buying service.


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Re: Which account to withdraw from first?

Postby grabiner » Thu Apr 04, 2013 7:51 pm

TN_INVEST wrote:Be mindful of your taxable income each year. You don't want to draw money from a taxable account and push yourself into a higher bracket (you might even find that you run in to those tax penalties).


Withdrawing from a taxable account is unlikely to push you into a higher tax bracket, since the withdrawals will be mostly long-term gains taxed at 15%. (A higher marginal tax rate is possible if you are in the phase-out range for some tax benefits.)
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Re: Which account to withdraw from first?

Postby Peter Foley » Fri Apr 05, 2013 12:40 am

Generally such purchases would be made from a savings or checking account. You can rebalance in other accounts if that is an issue. If those accounts contain only your emergency funds, then your taxable account with long term capital gains is the next best option unless you are in a very, very high tax bracket.
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Re: Which account to withdraw from first?

Postby dbr » Fri Apr 05, 2013 10:06 am

grabiner wrote:
TN_INVEST wrote:Be mindful of your taxable income each year. You don't want to draw money from a taxable account and push yourself into a higher bracket (you might even find that you run in to those tax penalties).


Withdrawing from a taxable account is unlikely to push you into a higher tax bracket, since the withdrawals will be mostly long-term gains taxed at 15%. (A higher marginal tax rate is possible if you are in the phase-out range for some tax benefits.)


More (or less) than that a portion, perhaps a substantial portion, of withdrawals will be already taxed basis which is a tax free withdrawal now. This is a good reason to keep track of investments by tax lot and withdraw at the lowest tax cost.
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