seugene wrote:Complex considerations are involved with many moving parts. Check this out: http://www.twenty-first.com/pdf/Horan-Withdraw_Loc.pdf.
Because distributions from traditional IRAs are taxable and those from Roth IRAs are not, making withdrawals from traditional IRAs is advantageous when the tax burden is light and making withdrawals from Roth IRAs is advantageous when the tax burden would otherwise be heavy. When taxable distributions can be applied against personal exemptions and deductions or against tax brackets with relatively low tax rates, a naive strategy of withdrawing from the traditional IRA first was found to perform substantially better than the naive strategy of withdrawing from the Roth IRA first. However, an informed strategy of taking traditional IRA distributions up to the top of a “low” tax bracket and satisfying the remainder of the withdrawal requirement from the Roth IRA yields residual accumulations that are substantially greater than the better naive strategy.
Peter Foley wrote: A 2006 TIAA-CREF institute paper by William Reichenstein , Tax-Efficient Sequencing of Accounts to Tap in Retirement shows that applying these principles can increase account longevity by 2.5 to 3.0 years. (This is on the Wiki.)
The case analysis assumes a 25% ordinary tax rate and a 15% capital gains rate for a married couple receiving social security.
Tax Efficient Withdrawal Strategies/Scenarios flow chart is a guide, not an absolute. Its purpose is to pick up where Reichenstein left off.
Possible Tax Efficient Withdrawal Strategies: 6 profiles. A sample profile:
• High income/taxes now - High income later
• You are retired but not yet drawing social security.
• You have more money in your taxable accounts than in your tax deferred accounts. You are in a relatively high bracket and will continue to be in a relatively high tax bracket when you begin social security withdrawals.
Primary withdrawal strategies:
• Withdraw funds as needed for living expenses from your taxable account. Unless you 1) can control your annual income and are able to lower it (no defined pension for example) 2) have a very high tax bracket when you start your RMDs and/or 3) you wish to leave substantial assets to your heirs, it is likely not to be to your advantage to convert tax deferred funds to a Roth.
• Once you start receiving social security, follow scenario D or E, whichever is appropriate.
• Exception: If you have more funds than you will need in your lifetime, withdraw from your tax deferred funds first to allow your heirs to receive your taxable funds on a stepped up basis.
OAG wrote:This may help - the book can be read (on-line): http://books.google.com/books?id=cul7Tm ... q=&f=false
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