Retired, what is the best way to start taking money out of funds?

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EdB
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Joined: Mon Jan 25, 2016 12:25 pm

Retired, what is the best way to start taking money out of funds?

Post by EdB »

What is the best way to start dipping into my retirement & mutual fund investments?

I have about 660K in regular IRA, and around 390K in a few mutual funds that I have been dollar-cost averaging for the last 20 years. Everything I have is in Vanguard funds :).

I will be 65 in June. Lets say I want 10K a year to supplement my SS.

Assuming I leave the IRA alone until age 70.5, it seems like there are really just two options.

1. Redirect mutual fund dividends and pay associated taxes;
2. Sell mutual funds and pay the capital gains.

In my simple world with my simple mind, is (2) not the better option all around? I mean, for the 10K I take out, I should have already paid taxes on maybe half of that, so I would only owe taxes for about 5K. For option (1), would I pay taxes on the full 10K.

Or am I off the rails here?

(Either way, it's not a bad problem to have.)
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LAlearning
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Re: Retired, what is the best way to start taking money out of funds?

Post by LAlearning »

nope your right.
consider putting off SS if possible
take the dividends, distributions as cash to spend.
then sell taxable assets as needed (starting with losses if you have any but prob not after 20 years....)
dont forget roth conversions until 70
then RMDs after that.

this was a pretty good talk on exactly what you are looking for from Vanguard:
https://advisors.vanguard.com/VGApp/iip ... ntSpending

rinse, repeat, enjoy.
I know nothing!
Kywildcat
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Re: Retired, what is the best way to start taking money out of funds?

Post by Kywildcat »

Wouldn't the dividends on the $390k (not in IRA) be taxed regardless if you withdraw to spend or reinvest? In that case, wouldn't it be best to just spend the dividends and defer the capital gain taxes?
Northster
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Re: Retired, what is the best way to start taking money out of funds?

Post by Northster »

We don't know your income but if not over $75K joint you may not pay any capital gains tax at all, so I wouldn't hesitate to sell some of those mutual funds as needed. If you have tax software you can create a 'what if' return and see what the effects would be.
dbr
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Re: Retired, what is the best way to start taking money out of funds?

Post by dbr »

Yes, see the reply above, you can't not pay the taxes on dividends. For that reason a person might as well cash the dividends if they want a withdrawal. That is a reason why all else being equal one would rather not have dividends.

The point also made above about SS is valid -- consider delaying SS to 70.
Topic Author
EdB
Posts: 58
Joined: Mon Jan 25, 2016 12:25 pm

Re: Retired, what is the best way to start taking money out of funds?

Post by EdB »

Kywildcat wrote:Wouldn't the dividends on the $390k (not in IRA) be taxed regardless if you withdraw to spend or reinvest? In that case, wouldn't it be best to just spend the dividends and defer the capital gain taxes?
I think you are right. That crossed my mind a few minutes after my post ...
mptfan
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Re: Retired, what is the best way to start taking money out of funds?

Post by mptfan »

dbr wrote:Yes, see the reply above, you can't not pay the taxes on dividends.
It is possible to not pay taxes on dividends if the dividends are "qualified dividends" from a non-retirement account and you are in the 15% or lower tax bracket.
dbr
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Re: Retired, what is the best way to start taking money out of funds?

Post by dbr »

mptfan wrote:
dbr wrote:Yes, see the reply above, you can't not pay the taxes on dividends.
It is possible to not pay taxes on dividends if the dividends are "qualified dividends" from a non-retirement account and you are in the 15% or lower tax bracket.
Of course. :oops: Still, the OP should verify the exact tax situation.
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SeeMoe
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Re: Retired, what is the best way to start taking money out of funds?

Post by SeeMoe »

LAlearning wrote:nope your right.
consider putting off SS if possible
take the dividends, distributions as cash to spend.
then sell taxable assets as needed (starting with losses if you have any but prob not after 20 years....)
dont forget roth conversions until 70
then RMDs after that.

this was a pretty good talk on exactly what you are looking for from Vanguard:
https://advisors.vanguard.com/VGApp/iip ... ntSpending

rinse, repeat, enjoy.
Why not take SS as soon as possible, even if you don't need it. Then invest it and be ahead of the game instead of waiting until age 70. "Better a bird in hand,..Than one that gets away due to government entitlements " downsizing" , or DOA at 69,70..."
Feel the same regards Roth conversions that are expensive tax wise. Better to take standard IRA RMD's at seventy and six months age end of each year in a lump sum. Then pay the taxes, and probably at a lower rate! (Never be afraid to pay your taxes on investments. It means you are successful, and is right for the USA. Harry Gross, WPVI radio, Philly.)

SeeMoe.. :dollar
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Topic Author
EdB
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Joined: Mon Jan 25, 2016 12:25 pm

Re: Retired, what is the best way to start taking money out of funds?

Post by EdB »

SeeMoe wrote:
LAlearning wrote:nope your right.
consider putting off SS if possible
take the dividends, distributions as cash to spend.
then sell taxable assets as needed (starting with losses if you have any but prob not after 20 years....)
dont forget roth conversions until 70
then RMDs after that.

this was a pretty good talk on exactly what you are looking for from Vanguard:
https://advisors.vanguard.com/VGApp/iip ... ntSpending

rinse, repeat, enjoy.
Why not take SS as soon as possible, even if you don't need it. Then invest it and be ahead of the game instead of waiting until age 70. "Better a bird in hand,..Than one that gets away due to government entitlements " downsizing" , or DOA at 69,70..."
Feel the same regards Roth conversions that are expensive tax wise. Better to take standard IRA RMD's at seventy and six months age end of each year in a lump sum. Then pay the taxes, and probably at a lower rate! (Never be afraid to pay your taxes on investments. It means you are successful, and is right for the USA. Harry Gross, WPVI radio, Philly.)

SeeMoe.. :dollar
Actually, I already am taking SS, started at age 63 when my career ended. Thought hard and ran scenarios and that was my conclusion. No regrets or second thoughts at all.
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SeeMoe
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Location: Near Philly..

Re: Retired, what is the best way to start taking money out of funds?

Post by SeeMoe »

EdB wrote:
SeeMoe wrote:
LAlearning wrote:nope your right.
consider putting off SS if possible
take the dividends, distributions as cash to spend.
then sell taxable assets as needed (starting with losses if you have any but prob not after 20 years....)
dont forget roth conversions until 70
then RMDs after that.

this was a pretty good talk on exactly what you are looking for from Vanguard:
https://advisors.vanguard.com/VGApp/iip ... ntSpending

rinse, repeat, enjoy.
Why not take SS as soon as possible, even if you don't need it. Then invest it and be ahead of the game instead of waiting until age 70. "Better a bird in hand,..Than one that gets away due to government entitlements " downsizing" , or DOA at 69,70..."
Feel the same regards Roth conversions that are expensive tax wise. Better to take standard IRA RMD's at seventy and six months age end of each year in a lump sum. Then pay the taxes, and probably at a lower rate! (Never be afraid to pay your taxes on investments. It means you are successful, and is right for the USA. Harry Gross, WPVI radio, Philly.)

SeeMoe.. :dollar
Actually, I already am taking SS, started at age 63 when my career ended. Thought hard and ran scenarios and that was my conclusion. No regrets or second thoughts at all.
Thanks for the fast reply, pensioner. I did the sample for my reasons stated earlier and have no regrets. The SS has allowed us to continue investing and growing our taxable folio nicely. Began taking our RMD's from our traditional IRA's as described to at RMD age . Just purchased a 2017 red GLS450 Mercedes Benz SUV with some of our Vanguard winnings, and living large in a 5 star CCRC thanks, again, to Vanguard! Our folios are 45/55 now and eventually will be 40/60 by age 75. Life is good, but we slowly earned it over many years of investing...But not denying ourselves either.

SeeMoe.. :mrgreen:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
itstoomuch
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Re: Retired, what is the best way to start taking money out of funds?

Post by itstoomuch »

+1 above post.
Also took SS early and allowed IRAs and taxables to grow very nicely.
Next week are going to take a 3rd cruise this year.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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