Tax-Adjusted AA - What withdrawal tax rates do you use?

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Todd33445
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Joined: Mon Jan 11, 2010 1:16 pm

Tax-Adjusted AA - What withdrawal tax rates do you use?

Post by Todd33445 » Tue Jan 12, 2010 10:43 am

The wiki has a good article on this, but I'm curious to hear what members use for withdrawal tax rates.

Unless this seems off, I'm planning on using:
0% Roth
30% 401k
30% Taxable

eurowizard
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Joined: Sat May 10, 2008 10:26 am

Post by eurowizard » Tue Jan 12, 2010 10:49 am

40% on tax-deferred accounts
20% on Roth IRAs

The Roth income may push your SS and/or tax-deferred distributions into the next tax bracket, so I like to consider this penalty as part of the Roth. Also there may be a VAT instituted.

I dont turn 60 for over 30 years and the government is going to have to pay for all this reckless spending somehow. I expect to be taxed BIG in retirement.

markcoop
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Joined: Fri Mar 02, 2007 8:36 am

Post by markcoop » Tue Jan 12, 2010 11:16 am

15% on tax-deferred accounts
0% on Roth IRAs
Actual for taxable (My current tax rate for income, 15% LTCG).

Most of my taxable money I plan to use before I retire.

I prefer to take a middle of the road approach for my retirement income. No idea on future tax brackets. No idea how much of my tax-deferred money will fall in the various tax-brackets.
Mark

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serbeer
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Post by serbeer » Tue Jan 12, 2010 12:27 pm

30% taxable, 25% IRA, 0% Roth
Taxable % explained in http://www.bogleheads.org/forum/viewtopic.php?t=47986
IRA's is just a guess at future tax rates

livesoft
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Post by livesoft » Tue Jan 12, 2010 12:46 pm

0% on Roth
5% on taxable
5% on tax-deferred

The reasons is that my effective tax rate now while working is about 8%. Most of my tax-deferred withdrawals will be in the 0% bracket, some in the 10%, some in the 15%. For my taxable withdrawal, most will be return of capital (taxed at 0%, i.e. tax-free), some will be taxed at 0%, 15% or 20% (LT cap gains rate in effect at the time).

I do not have a pension, so I will be relying solely on my investments for my expenses. I have a good handle on taxes now in my semi-retirement, so I think I can project the future rather easily.

I think the Wiki article is not correct and a bit of scare-mongering.

Wagnerjb
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Location: Houston, Texas

Post by Wagnerjb » Tue Jan 12, 2010 1:23 pm

livesoft wrote:0% on Roth
5% on taxable
5% on tax-deferred

The reasons is that my effective tax rate now while working is about 8%. Most of my tax-deferred withdrawals will be in the 0% bracket, some in the 10%, some in the 15%. For my taxable withdrawal, most will be return of capital (taxed at 0%, i.e. tax-free), some will be taxed at 0%, 15% or 20% (LT cap gains rate in effect at the time).

I do not have a pension, so I will be relying solely on my investments for my expenses. I have a good handle on taxes now in my semi-retirement, so I think I can project the future rather easily.
I use 0%, 0% and 0% for reasons similar to Livesoft....(and I am a CPA). My true effective tax rate is probably very close to the numbers Livesoft is using, but I believe the precison one gets by using 5% is "rounding error" as we say in finance. Using such small adjustments you will find that your AA might be 62% stock, as opposed to your "target" of 60% stock. Can you really tell the difference between 62% and 60%? How do you know what is the "exact" right number for you?

Anybody using 25% or 30% is exceedingly conservative, unless your nest egg is something like $20 million.

Best wishes.
Andy

mikep
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Post by mikep » Tue Jan 12, 2010 2:15 pm

I use 15% pretax 401k and 0% Roth (no taxable), and I am in 33% combined fed/state brackets.

If I was not in California, I would probably use 5 or maybe 10% like the other posters.

I agree that the wiki is extreme in suggesting that you use only your marginal tax rate.

dbr
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Joined: Sun Mar 04, 2007 9:50 am

Post by dbr » Tue Jan 12, 2010 4:41 pm

Wagnerjb wrote:[Your AA might be 62% stock, as opposed to your "target" of 60% stock. Can you really tell the difference between 62% and 60%? How do you know what is the "exact" right number for you?

Best wishes.
It is certainly true that if you do not know how to exactly calculate a correct AA without tax adjustment, then you do not know how to calculate one with tax adjustments.

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Doc
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Post by Doc » Tue Jan 12, 2010 5:42 pm

serbeer wrote:30% taxable, 25% IRA, 0% Roth
Taxable % explained in http://www.bogleheads.org/forum/viewtopic.php?t=47986
IRA's is just a guess at future tax rates
You seem to have a good grasp of this subject. I'm not sure I agree with Reichenstein, but if I did the numbers you are using would be very reasonable.

Regards,

Doc

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