Husband and Wife 401k's upon retirement

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Stvr
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Joined: Thu Jan 11, 2018 9:40 pm

Husband and Wife 401k's upon retirement

Post by Stvr »

First post here from a sometimes reader of your great forum. Couple of facts. Me, 67 yo retired since 12/2019 with a 401K account in my old employers 401K plan. $2.8M balance. Never rolled over. My wife, 62 yo will retire 6/2022. She also has a 401K account with her employer. $1.3M balance. My plan has always envisioned a single pot of money from the 401k's which we'd manage. By way of example, like the 3-4 fund allocation. To my surprise, I've learned that for most cases, i can't combine 401K's into a single account which would be much easier to manage than two for many reasons. So if I go with a 60/40 asset allocation, will I have to split both accounts accordingly? Guess I could set up where her's is all fixed income and mine all stocks (ignoring the math split in the example) and do the withdraws on that basis. We plan on an annual withdraw of $48K/yr. Does that mean I must withdraw from each of the accounts?
How do you guys manage this? Am I missing something?
Thanks in advance,

Mark
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Sandi_k
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Re: Husband and Wife 401k's upon retirement

Post by Sandi_k »

Mark, you are thinking correctly - while 401(k) and IRAs are - by definition! - individual accounts, you and your spouse can combine them for a singular asset allocation.

One way to do that would be to simplify - say, have Vanguard Balanced Index fund (60% stock/40% bonds, VBIAX) as the ONLY holding for them both. Then you'd simply distribute your payout proportionately, say $22k from the wife's and $26k from yours, each year.

As I get older, simplicity like this is more appealing to me than managing multiple funds in multiple accounts.

Best of luck, and welcome!
Charon
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Re: Husband and Wife 401k's upon retirement

Post by Charon »

I agree with Sandi_k that the simplicity of a single-fund solution in each would be tempting to me, but there's nothing wrong with your 3- or 4-fund approach.

You don't have to withdraw from each... yet. When you get to RMDs, then you will have to withdraw from each, and your RMDs will be much higher than your planned withdrawal (which is extremely low compared to your account balances).
Silk McCue
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Re: Husband and Wife 401k's upon retirement

Post by Silk McCue »

If you were already 72 your RMD on $2.8M would be $109,735. You need to consider the consequences of your taxes. I wouldn’t withdraw from your wife’s 401k anytime soon but rather reduce yours by withdrawing or converting to Roth beyond your current spending needs.

Welcome to Bogleheads!

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wolf359
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Re: Husband and Wife 401k's upon retirement

Post by wolf359 »

You can treat both of the accounts as one big portfolio for purposes of asset allocation. The reason you have to keep them separate and distinct is because of the Required Minimum Distributions (RMDs).

You will turn 72 and have to start RMDs sooner than your spouse. When that happens, you will be required to withdraw a certain amount from your 401-k (and generate taxes on that amount), whether you need it or not. For a time, you might end up taking all withdrawals from your account simply re-investing the excess. Eventually, both of you will be over 72, and you will both be making RMDs.

To prepare for this, you may want to conduct some Roth conversions while you're retired and before you hit age 72. You can strategically choose which account you want to reduce. The idea is to pay some of your taxes now that you're retired and while your income is low. When the RMDs start kicking in, your income will increase.
twh
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Re: Husband and Wife 401k's upon retirement

Post by twh »

Yes, the accounts are separate and cannot be combined.

If you were really hoping for more simplicity, which I really don't see as an issue...

You could also just settle on a 68% equity, 32% fixed income.
Your $2.8M is 68% of the combined total.
Wife's $1.3M is 32% of the combined total.

Then all the equity management is in your account and all the fixed income in hers.
Luckywon
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Re: Husband and Wife 401k's upon retirement

Post by Luckywon »

In addition to considering Roth conversions, perhaps it would make sense to favor placing your wife's IRA in stocks and your own IRA in bonds, to achieve your overall desired allocation. This is because stocks would be expected to grow faster, and her RMD schedule is delayed compared to yours.

So if you want a 50/50 allocation stocks/bonds:
You $2.05 million bonds, $750k stocks
Wife $1.3 million stocks
307068304
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Joined: Sun Feb 07, 2021 10:20 am

Re: Husband and Wife 401k's upon retirement

Post by 307068304 »

Hi,

You could roll over to 2 IRA account, after you stop your employment this is allowed. The issue is that often simple rollover does not work and you will need to rebalance via rollover. If you move to Vanguard you will have their choices, I moved 10 different funds into one VTSAX investment after leaving my financial advisor. And there is no tax liability given it’s all happening in the tax deferred account. Once your wife retires you can move hers under the same brokerage like Vanguard to have an easier management of the funds.

I agree with above comments on RMDs. You want to withdraw from your 401k first to reduce the tax burden after RMDs kick in. These are fairly high balances in tax deferred accounts, did you also invest into taxable? From tax perspective your lowest tax liabilities are between now and your 70.5. That’s a short distance from reducing tax liability standpoint.
delamer
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Re: Husband and Wife 401k's upon retirement

Post by delamer »

You are right to envision the assets as one big pot of money.

The fact that you can’t actually put them in one account is a minor hiccup.

You can do your withdrawals from whichever account you want, for now. Once you turn 72, you’ll have to begin Required Minimum Distributions from the account in your name. Same for your wife when she turns 72 — she’ll have to begin RMDs from her account. Those RMDs will push you above the $48.000 that you need to cover your expenses. Any excess can be reinvested in a taxable account.

Are you planning on rolling over each of the 401(k)s to an IRA? If not, then picking the best funds available in each account is the way to go (consistent with your desired allocation). So if your wife has a low cost, index stock fund in her plan and you don’t, then put as much of your stocks as possible in your wife’s plan.

You can do withdrawals to help rebalance. So if stocks have a run up and their allocation is now at 65% rather than your desired 60%, then withdraw stocks.

If you are going with a simple allocation of US stocks and bonds, then use a low cost, index fund for each. If it’s more complex allocation, than an all-in-one fund would make life a bit easier.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. | | Alexandre Dumas, fils
exodusNH
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Joined: Wed Jan 06, 2021 8:21 pm

Re: Husband and Wife 401k's upon retirement

Post by exodusNH »

Stvr wrote: Wed Nov 24, 2021 12:49 pm First post here from a sometimes reader of your great forum. Couple of facts. Me, 67 yo retired since 12/2019 with a 401K account in my old employers 401K plan. $2.8M balance. Never rolled over. My wife, 62 yo will retire 6/2022. She also has a 401K account with her employer. $1.3M balance. My plan has always envisioned a single pot of money from the 401k's which we'd manage. By way of example, like the 3-4 fund allocation. To my surprise, I've learned that for most cases, i can't combine 401K's into a single account which would be much easier to manage than two for many reasons. So if I go with a 60/40 asset allocation, will I have to split both accounts accordingly? Guess I could set up where her's is all fixed income and mine all stocks (ignoring the math split in the example) and do the withdraws on that basis. We plan on an annual withdraw of $48K/yr. Does that mean I must withdraw from each of the accounts?
How do you guys manage this? Am I missing something?
Thanks in advance,

Mark
Unless your 401k has fund options that you can't find elsewhere, like a good stable value fund, you will get more flexibility rolling it into an IRA.

You can't actually combine all of your individual accounts into one pot of money, well, unless one of you dies. (Not recommended.) But you can consider them to be a theoretical big pot of money, and keep your AA as if you actually had one pot. For example, if one of the tax-advantaged accounts has a fantastic bond fund or stable value option, you might keep all of your bonds there an use your others for equities.

As you pull money out of the accounts, you should hold primarily equities and cash or short-term bonds in your taxable accounts. You'll then adjust your bond holdings in tax-advantaged to maintain your AA. Keeping bonds in your tax-advantage accounts is beneficial because, in taxable, the interest payments are taxed as ordinary income. It also slows the growth of the tax-advantaged accounts, which reduces the amount of your RMDs. (Which forces you to recognize income to pay taxes, even if you just go ahead and put it back into the market.)

As others have noted, you should look at converting some part of your current tax-deferred accounts into Roth accounts while your income is reduced. Since your wife is working until next June, keep in mind that as long as she earns enough money, you're both able to contribute up to $7,000 in your IRAs.

Since you're going to hit your RMDs sooner, it might make sense to hold most of your bonds in that account, and more equities in your spouse's. Again, that will limit growth in your 401k so that your RMDs aren't as large. (Assuming you don't need that money. If you had to take an RMD right now, you'd have to pull, ~110K, which would be taxed as ordinary income.)

https://www.bogleheads.org/wiki/Tax-eff ... _placement
Topic Author
Stvr
Posts: 4
Joined: Thu Jan 11, 2018 9:40 pm

Re: Husband and Wife 401k's upon retirement

Post by Stvr »

Thanks you so much for the clarifications and advice. I'll have to keep the advice in mind and combine it with the three bucket approach i.e. bucket 1 - two yrs cash/liquid; bucket 2 - 8-10 yrs short term/intermediate bond funds and bucket 3 - rest in equity some split between total stock and international.

Best,

Mark
niceguy7376
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Re: Husband and Wife 401k's upon retirement

Post by niceguy7376 »

OP,
You might still be missing the bigger issue of RMDs when they are due (looks like you might have only next year of 2022) from say 2023.

If you have low income this year, then go ahead and take out more from your 401k and pay the low taxes of zero, 10 and 12 and put it in taxable.

Forum members can help if you share what is your family income this year and next year
Silk McCue
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Re: Husband and Wife 401k's upon retirement

Post by Silk McCue »

niceguy7376 wrote: Wed Nov 24, 2021 3:58 pm OP,
You might still be missing the bigger issue of RMDs when they are due (looks like you might have only next year of 2022) from say 2023.

If you have low income this year, then go ahead and take out more from your 401k and pay the low taxes of zero, 10 and 12 and put it in taxable.

Forum members can help if you share what is your family income this year and next year
OP is 67 and won’t be 72 until 2026 when RMDs are due.

Cheers
niceguy7376
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Re: Husband and Wife 401k's upon retirement

Post by niceguy7376 »

Silk McCue wrote: Wed Nov 24, 2021 4:33 pm OP is 67 and won’t be 72 until 2026 when RMDs are due.
Cheers
I read it wrong. I assumed 67 when retired in 2019
dbr
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Re: Husband and Wife 401k's upon retirement

Post by dbr »

You can allocate assets across any variety of accounts whether 401k, IRA, Roth, taxable in any variety of ways. The restrictions are that individual accounts are individual and that RMDs are applied by individual and not joint for a couple. Other withdrawals can be anything.

There can be tax ramification for exactly how these things are done and that gets complicated very fast. Tax implications can also be different according to joint or separate tax filing.
Carl53
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Re: Husband and Wife 401k's upon retirement

Post by Carl53 »

We have no idea about whether you have other sources of income or savings nor whether you will be receiving SS. With that pot of money the simple asset split mentioned by you sounds good. If 48k is your sole income and even if it is not, consider upping your near term withdrawals and live it up a little. Even if it is to fund gifts to any offspring you have that might be looking for a house downpayment, or a Roth conversion where you can see that you've set up the surviving spouse better than leaving it all in pretax. Once you are 70.5, Qualified Charitable Deductions, might prove to be worth considering.
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Eagle33
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Re: Husband and Wife 401k's upon retirement

Post by Eagle33 »

Carl53 wrote: Wed Nov 24, 2021 7:05 pm We have no idea about whether you have other sources of income or savings nor whether you will be receiving SS. With that pot of money the simple asset split mentioned by you sounds good. If 48k is your sole income and even if it is not, consider upping your near term withdrawals and live it up a little. Even if it is to fund gifts to any offspring you have that might be looking for a house downpayment, or a Roth conversion where you can see that you've set up the surviving spouse better than leaving it all in pretax. Once you are 70.5, Qualified Charitable Deductions, might prove to be worth considering.
QCD's are only available from IRA's, not 401k's. So consider rolling over at least a portion of each of your 401k's the year before each of you turn 70.5 to have this option available to each of you. It really benefits you when RMD's start in the years you turn 72 - QCD satisfies an equal amount of your RMD for the year as long the QCD is taken prior to completing your RMD for the year.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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