Anyone have thoughts on William Reichenstein's withdrawal strategy?

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Vinny_in_NJ
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Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

I did an OK job at accumulation, I think my disbursement is going to be a mess!

I listened to a Moningstar podcast and they were speaking to William Reichenstein about his withdrawal strategy of pulling from IRAs first vs the standard of puling from taxable accounts first. It was what I have been thinking about before hearing the podcast. By drawing down the IRAs to live, converting some extra of the IRA money to Roth money and waiting until 70 for us to start SS we could potentially be looking at no IRMAAs and no really high tax brackets when one of us is a widow(er).

We are currently in the 12% tax bracket and if we popped into the 22% bracket by $20K or $30K we wouldn't be looking at too high of a tax burden. The only drawback that I am seeing in my calculations is that bond yields in the 4 to 5% range with enough money in bonds and stock dividends will offset some of the money we would be pulling out of the IRAs so not quite the draw down as it could be.

Had I learned about the the challenges of withdrawing money 5 years ago I would have started then ... but then again those 5 years has been kind to us financially!
sc9182
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by sc9182 »

Sure filing single and/or encountering IRMAA torpedo be pretty nasty.

Let us see what is counter-factual: we had market TWO quite-large market draw-downs (along with double-digit messy bond performance) over the course of 3-4 years. If your portfolio has taken a hit about 30-40% (depending on how your portfolio assets-classes taken a hit) -- Betcha., one would be happy with larger Trad-IRA portfolio to draw from (for living expenses **); than from one smallish Roth account (likely-aggressively invested Roth would have taken much larger beating during such market draw-downs!!).

Now that markets and portfolios have mostly recovered (and likely reached new all-time highs) -- larger Trad IRAs sounds like tax-irritant.

If you would have known markets recover and/or had extra "monies/brokerage-monies" besides Trad-IRA -- some Roth-conversion during last two draw-downs would have been "more" beneficial. Then again - its water under-the-bridge now.


** If you are sure -- you never needed monies from Trad-IRA to live from., and have long life-expectancy yes - Roth could provide "slight but minimal" edge -- assuming your marginal tax rates remain same/similar while contributing AND in retirement.
Exchme
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Exchme »

Not listened to it, maybe you can give us a summary of his points. In general, I can't imagine that there is a one-size-fits-all answer. .

Spending from taxable results reduces annual tax drag from dividends, but if the account gets exhausted, then even highly appreciated investments had to be sold and those may be new lifetime taxes as there would be a step-up basis upon death.

Spending from tax deferred may help level out tax rates for yourself and heirs, but it exposes you to more annual tax drag in taxable and if you give the residual estate to charities, they get less or if you need long term care, you could have taken the money out at a low tax cost.

If you have a large tax deferred balance, the winner may well be Roth Conversions with taxes paid from taxable, to both level out lifetime tax brackets and reduce annual tax drag in taxable.

Your answer will vary depending on circumstances, the better calculators can help you with your decision.
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Leif
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Leif »

Are you referring to the Long View interview from April 26, 2022?

William Reichenstein: Avoiding Tax Headaches in Retirement
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

sc9182 wrote: Sun Mar 31, 2024 11:36 am Sure filing single and/or encountering IRMAA torpedo be pretty nasty.

Let us see what is counter-factual: we had market TWO quite-large market draw-downs (along with double-digit messy bond performance) over the course of 3-4 years. If your portfolio has taken a hit about 30-40% (depending on how your portfolio assets-classes taken a hit) -- Betcha., one would be happy with larger Trad-IRA portfolio to draw from (for living expenses **); than from one smallish Roth account (likely-aggressively invested Roth would have taken much larger beating during such market draw-downs!!).

Now that markets and portfolios have mostly recovered (and likely reached new all-time highs) -- larger Trad IRAs sounds like tax-irritant.

If you would have known markets recover and/or had extra "monies/brokerage-monies" besides Trad-IRA -- some Roth-conversion during last two draw-downs would have been "more" beneficial. Then again - its water under-the-bridge now.


** If you are sure -- you never needed monies from Trad-IRA to live from., and have long life-expectancy yes - Roth could provide "slight but minimal" edge -- assuming your marginal tax rates remain same/similar while contributing AND in retirement.
I'm retiring in 2 months and most of the money is in my 401K, with a little bit in a Roth 401K. There is some money in traditional and Roth outside of my of my 401K along with an investment account. I did draw $20K last year from the 401K to have some cash available "just in case" being so close to retiring but it barely made a dent at the time and it has more than recovered.

Roth would be the last to be touched unless there's a specific reason to not bump up a tax bracket (like a car purchase) but having cash equivalent in a brokerage account is just as effective. I have heard of utilizing down markets for the sake of converting more money into Roth to take advantage of the lower IRA value ... I haven't lived it so I can't say I would do it but it sounds like it may be a good plan.

As far as longevity, we never know when time is up! I suspect we will be in the 12/15% tax bracket until RMDs start because although we need about $100K to live with a little extra money we can control that; can't control how much the market has gone up/down and the implication of that. But the single filer, whenever that may happen, will be hit hard.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

Leif wrote: Sun Mar 31, 2024 12:17 pm Are you referring to the Long View interview from April 26, 2022?

William Reichenstein: Avoiding Tax Headaches in Retirement
Yes!
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

Exchme wrote: Sun Mar 31, 2024 11:53 am Not listened to it, maybe you can give us a summary of his points. In general, I can't imagine that there is a one-size-fits-all answer. .

Spending from taxable results reduces annual tax drag from dividends, but if the account gets exhausted, then even highly appreciated investments had to be sold and those may be new lifetime taxes as there would be a step-up basis upon death.

Spending from tax deferred may help level out tax rates for yourself and heirs, but it exposes you to more annual tax drag in taxable and if you give the residual estate to charities, they get less or if you need long term care, you could have taken the money out at a low tax cost.

If you have a large tax deferred balance, the winner may well be Roth Conversions with taxes paid from taxable, to both level out lifetime tax brackets and reduce annual tax drag in taxable.

Your answer will vary depending on circumstances, the better calculators can help you with your decision.
Basically, it's why one should consider using their tax deferred accounts before using a taxable account to avoid higher level taxes when the time comes for RMDs and the tax hit SS gets by having all that money coming in. If you're SS is going to get taxed and you're getting pushed into a higher tax bracket - wait to collect SS and then use tax deferred IRAs to live on and do Roth conversions. Hopefully when the time comes, you have drawn down enough money from living and Roth conversions that all the penalties of having money - higher tax bracket, SS being taxed at a higher level and IRMAAs on Medicare and Part D won't be happening or won't be so bad. Taxes on capital gains is 15% max where income taxes can be much higher. You don't have to take a capital gain if you don't need it (I added this). While waiting to collect our SS goes up by 8% a year + COLAs and it's guaranteed (at least for now).

As far as inheritance taxes, taxable accounts and Roths are treated differently than tIRAs so it might be better to do Roths for their sake. I'm still sitting on the fence as far as using taxable money to pay taxes for a Roth conversion, I have to think about that a little more as I'd hate to deplete that account for a few $1,000s in taxes (not talking about huge amounts of money).

Until I heard it in this podcast all I kept on hearing was withdrawal from traditional, taxable and last Roth. Since most of our money is in tax deferred I had always questioned the logic behind it for us. I agree that not everything is a one size fit's all, when I started tracking our retirement money I heard that we should wait until 70 to collect SS and it would have drained our accounts to where I would feel uncomfortable even without a market correction. Today, it's a different story, our money has grown a lot. Once I have total control of my 401K money in a tIRA I'll be able to set up my bond portion differently than I can in my 401K. Living on Interest and bond money with maybe dividends thrown in to offset the total withdrawal is not as big a hit as selling a stock fund that's down 40% or more, at least I'm thinking that based on what I've heard.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Exchme »

Pralana Gold (paid Excel sheet) has an optimizer that looks at which account to deplete first. In our case, it confirmed the conventional wisdom to use taxable first. The program also confirmed the conventional wisdom to pay taxes on Roth Conversions out of taxable. That latter will be the choice unless you have highly appreciated assets and are not far from your expiration date. With some work, you can do some of the same analyses in the free Retiree Portfolio Model spreadsheet at the Bogleheads' wiki. Both are complex programs that require some learning curve, but there can be a lot of money at stake. I like to hear ideas from experts, but the answers in your own case will depend on many factors, so I think there is no substitute for a model.

Years ago, I had built my own spreadsheet, but later saw the better offerings and stopped trying to debug mine, you can't be sure you got it right if you have nothing to check against and you can't be sure you don't have blind spots.
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

Exchme wrote: Sun Mar 31, 2024 5:43 pm Pralana Gold (paid Excel sheet) has an optimizer that looks at which account to deplete first. In our case, it confirmed the conventional wisdom to use taxable first. The program also confirmed the conventional wisdom to pay taxes on Roth Conversions out of taxable. That latter will be the choice unless you have highly appreciated assets and are not far from your expiration date. With some work, you can do some of the same analyses in the free Retiree Portfolio Model spreadsheet at the Bogleheads' wiki. Both are complex programs that require some learning curve, but there can be a lot of money at stake. I like to hear ideas from experts, but the answers in your own case will depend on many factors, so I think there is no substitute for a model.

Years ago, I had built my own spreadsheet, but later saw the better offerings and stopped trying to debug mine, you can't be sure you got it right if you have nothing to check against and you can't be sure you don't have blind spots.
I downloaded the Bogleheads spreadsheet you mentioned, opened it up and it is something I need to get my head into to try and to use it. I'm using a free version of modeling software that I've seen a few financial advisors using on YouTube. It's pretty robust but it does lack some of the professional features that I have seen the YouTubers use on this software. It can model various withdrawal scenarios and tax scenarios and has a listing of how much that should be taken. It has some weaknesses like I fill up the 12% tax bracket and want to withdraw $30K in the 22% tax bracket - it can't do that. It also has some assumptions that money is going to be placed in certain accounts, this assumption may go away on the professional version.

Using the software with all my current and future expenses, waiting to 70 for both of us collecting, one of us dying at 76 and using guardrails has us at 100% with a larger ending balance than we have now. Waiting to 70 allows us to draw down tax deferred accounts without the SS tax penalty. Depending on which way we withdraw taxable or tax deferred first has us at either $4.3M or $2.5M at 95 ... that's assuming one of us lives that long. How accurate is it, I couldn't say. If either figure is correct the question becomes which is better for our heirs - more money in a tax deferred or more money in tax free/taxable accounts? The software is suggesting to take from taxable account first but the main goal is not to get slammed in taxes when either of us are alone not maximizing our end goal money. The strategy suggested by William Reichenstein is interesting and it was something I was thinking about before hearing the podcast.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by livesoft »

Vinny_in_NJ wrote: Sun Mar 31, 2024 10:44 amI listened to a Moningstar podcast and they were speaking to William Reichenstein about his withdrawal strategy of pulling from IRAs first vs the standard of puling from taxable accounts first.
I read the transcript I did not come away with the same message. The word "conversion" appears 25 times on the link given.

I think he stated what on Bogleheads.org is conventional wisdom:

1. Convert some tax-deferred to Roth during early years and pay any taxes from your taxable account.
2. #1 above is "technically" withdrawing from tax-deferred, but one is NOT spending the money on expenses, but instead putting it into Roth IRA.
3. At least fill up the standard deduction or whatever lower tax brackets that you want, but maybe keep your long-term capital gains at 0% or 15%.
4. Bogleheads should know that married couples can have over $120,000 (rough guess) in adjusted gross income and pay no Federal income taxes, so that could be a lot of Roth conversions. That's not only because of the itemized or standard deductions, but also that Return of Capital is not taxed. Example: Sell $100,000 from your taxable account that has a 100% gain means that $50,000 was not taxed return of capital and the other $50,000 might still be in the 0% LTCG tax rate.

Of course, there are taxpayers without a taxable account. There are taxpayers with lots more assets, too.

I will say for myself that anybody who is in IRMAA territory is an exceptionally wealthy person. A web search says that currently only 7% of taxpayers have to pay IRMAA and Humble Dollar stated that only 8% of Medicare Part B recipients had to pay IRMAA. Needless to say, I am unconcerned about IRMAA (and we are already on Medicare).
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Exchme »

Vinny_in_NJ wrote: Sun Mar 31, 2024 7:59 pm
Exchme wrote: Sun Mar 31, 2024 5:43 pm Pralana Gold (paid Excel sheet) has an optimizer that looks at which account to deplete first. In our case, it confirmed the conventional wisdom to use taxable first. The program also confirmed the conventional wisdom to pay taxes on Roth Conversions out of taxable. That latter will be the choice unless you have highly appreciated assets and are not far from your expiration date. With some work, you can do some of the same analyses in the free Retiree Portfolio Model spreadsheet at the Bogleheads' wiki. Both are complex programs that require some learning curve, but there can be a lot of money at stake. I like to hear ideas from experts, but the answers in your own case will depend on many factors, so I think there is no substitute for a model.

Years ago, I had built my own spreadsheet, but later saw the better offerings and stopped trying to debug mine, you can't be sure you got it right if you have nothing to check against and you can't be sure you don't have blind spots.
I downloaded the Bogleheads spreadsheet you mentioned, opened it up and it is something I need to get my head into to try and to use it. I'm using a free version of modeling software that I've seen a few financial advisors using on YouTube. It's pretty robust but it does lack some of the professional features that I have seen the YouTubers use on this software. It can model various withdrawal scenarios and tax scenarios and has a listing of how much that should be taken. It has some weaknesses like I fill up the 12% tax bracket and want to withdraw $30K in the 22% tax bracket - it can't do that. It also has some assumptions that money is going to be placed in certain accounts, this assumption may go away on the professional version.

Using the software with all my current and future expenses, waiting to 70 for both of us collecting, one of us dying at 76 and using guardrails has us at 100% with a larger ending balance than we have now. Waiting to 70 allows us to draw down tax deferred accounts without the SS tax penalty. Depending on which way we withdraw taxable or tax deferred first has us at either $4.3M or $2.5M at 95 ... that's assuming one of us lives that long. How accurate is it, I couldn't say. If either figure is correct the question becomes which is better for our heirs - more money in a tax deferred or more money in tax free/taxable accounts? The software is suggesting to take from taxable account first but the main goal is not to get slammed in taxes when either of us are alone not maximizing our end goal money. The strategy suggested by William Reichenstein is interesting and it was something I was thinking about before hearing the podcast.
I don't know why you would want to look at a specific $ conversion, if it's worth crossing into a tax bracket/IRMAA tier, it's generally worth it to go to the next tax bracket/IRMAA tier. For instance, to get to the 22% bracket, you actually exposed yourself to a 27% marginal tax cost in the range where long term capital gains taxes are phased in (a $ of Roth Conversions is taxed at 12% as ordinary income, but it also increases your AGI, so pushes a $ of your LTCG/qualified dividends to also be taxes at 15%). So either stop short of the LTCG phase-in, or push through the 22% bracket to the top of the base IRMAA tier. The rest of your description sounds like you want something quite sophisticated, so RPM may not be enough for you. I would suggest Pralana Gold. While it costs, it has amazing power and flexibility.

If your heirs are charities, they don't mind tax deferred as they pay no taxes, but individuals have to remove the money in 10 years, so are likely to have hefty tax liabilities. Roth is of course best as it can remain tax protected for the full 10 years before going to your heirs taxable account and no taxes are due then.
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

Exchme wrote: Sun Mar 31, 2024 10:04 pm
Vinny_in_NJ wrote: Sun Mar 31, 2024 7:59 pm
Exchme wrote: Sun Mar 31, 2024 5:43 pm Pralana Gold (paid Excel sheet) has an optimizer that looks at which account to deplete first. In our case, it confirmed the conventional wisdom to use taxable first. The program also confirmed the conventional wisdom to pay taxes on Roth Conversions out of taxable. That latter will be the choice unless you have highly appreciated assets and are not far from your expiration date. With some work, you can do some of the same analyses in the free Retiree Portfolio Model spreadsheet at the Bogleheads' wiki. Both are complex programs that require some learning curve, but there can be a lot of money at stake. I like to hear ideas from experts, but the answers in your own case will depend on many factors, so I think there is no substitute for a model.

Years ago, I had built my own spreadsheet, but later saw the better offerings and stopped trying to debug mine, you can't be sure you got it right if you have nothing to check against and you can't be sure you don't have blind spots.
I downloaded the Bogleheads spreadsheet you mentioned, opened it up and it is something I need to get my head into to try and to use it. I'm using a free version of modeling software that I've seen a few financial advisors using on YouTube. It's pretty robust but it does lack some of the professional features that I have seen the YouTubers use on this software. It can model various withdrawal scenarios and tax scenarios and has a listing of how much that should be taken. It has some weaknesses like I fill up the 12% tax bracket and want to withdraw $30K in the 22% tax bracket - it can't do that. It also has some assumptions that money is going to be placed in certain accounts, this assumption may go away on the professional version.

Using the software with all my current and future expenses, waiting to 70 for both of us collecting, one of us dying at 76 and using guardrails has us at 100% with a larger ending balance than we have now. Waiting to 70 allows us to draw down tax deferred accounts without the SS tax penalty. Depending on which way we withdraw taxable or tax deferred first has us at either $4.3M or $2.5M at 95 ... that's assuming one of us lives that long. How accurate is it, I couldn't say. If either figure is correct the question becomes which is better for our heirs - more money in a tax deferred or more money in tax free/taxable accounts? The software is suggesting to take from taxable account first but the main goal is not to get slammed in taxes when either of us are alone not maximizing our end goal money. The strategy suggested by William Reichenstein is interesting and it was something I was thinking about before hearing the podcast.
I don't know why you would want to look at a specific $ conversion, if it's worth crossing into a tax bracket/IRMAA tier, it's generally worth it to go to the next tax bracket/IRMAA tier. For instance, to get to the 22% bracket, you actually exposed yourself to a 27% marginal tax cost in the range where long term capital gains taxes are phased in (a $ of Roth Conversions is taxed at 12% as ordinary income, but it also increases your AGI, so pushes a $ of your LTCG/qualified dividends to also be taxes at 15%). So either stop short of the LTCG phase-in, or push through the 22% bracket to the top of the base IRMAA tier. The rest of your description sounds like you want something quite sophisticated, so RPM may not be enough for you. I would suggest Pralana Gold. While it costs, it has amazing power and flexibility.

If your heirs are charities, they don't mind tax deferred as they pay no taxes, but individuals have to remove the money in 10 years, so are likely to have hefty tax liabilities. Roth is of course best as it can remain tax protected for the full 10 years before going to your heirs taxable account and no taxes are due then.
The purpose of doing specific dollar Roth conversions is to eliminate hefty tax bills in the 22/25% tax bracket while lowering tIRAs. Taking $20K or $30K will come to a $4400 or $6600 tax bill in the 22% bracket, once it becomes 25% it becomes $5000 or $7500. If we go up to the 12% tax bracket max (approx $120K) we would be withdrawing $107K due to a small pension I'll receive. Adding another $30K bringing us in the lower 22% tax bracket and has us withdrawing $137K for approximately 5 years lowering our IRA by about $685K without affecting SS, well maybe SS is affected in year 5. That $685K is not a true figure because interest and dividends will be some of it; If I assume $25K a year in dividends and interest then that's $585K withdrawn from the original amount. Assuming one of us doesn't die before age 75 we'll have about 5 years to just max out the 12/15% tax bracket to get some more money out before RMDs start; how much will that be - depends on the tax bracket situation at that time.

My heirs will be my kids, if modeling software is correct it hopefully will help them for their future ... no grand kids yet but who knows the future.

If my plan sounds sophisticated, I wasn't intending it to be. The question in my mind is it better to pay the lower 22/25% taxes now slowly vs getting hit with a larger bill in the 25% tax bracket when RMDs happen? Playing around with modeling software shows depending on the withdrawal strategy we could end up with a huge tax bill for a few years, something I want to avoid if possible. Keeping track of Roth conversions should be relatively easy using a spreadsheet assuming I don't lose my cognitive ability. Of course I may be all wrong on my assumptions which is why I like feedback on things!
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by bsteiner »

Vinny_in_NJ wrote: Mon Apr 01, 2024 8:14 am ... The question in my mind is it better to pay the lower 22/25% taxes now slowly vs getting hit with a larger bill in the 25% tax bracket when RMDs happen? ...
Probably, since there are other benefits of the Roth conversion. If you can pay the tax from other assets, you're effectively making a substantial additional contribution. There are no RMDs from a Roth during lifetime. You can leave a Roth in trust for your children without the trustees having to choose between making distributions to save income taxes and accumulating the IRA distributions to preserve asset protection.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by motiv8ed »

Vinny_in_NJ wrote: Sun Mar 31, 2024 7:59 pm ... I'm using a free version of modeling software that I've seen a few financial advisors using on YouTube. It's pretty robust but it does lack some of the professional features that I have seen the YouTubers use on this software. It can model various withdrawal scenarios and tax scenarios and has a listing of how much that should be taken.
Vinny_in_NJ,

I'm curious about which "free version of modeling software" you're referring to. Is it available to the rest of us?


motiv8ed
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

motiv8ed wrote: Mon Apr 01, 2024 3:52 pm
Vinny_in_NJ wrote: Sun Mar 31, 2024 7:59 pm ... I'm using a free version of modeling software that I've seen a few financial advisors using on YouTube. It's pretty robust but it does lack some of the professional features that I have seen the YouTubers use on this software. It can model various withdrawal scenarios and tax scenarios and has a listing of how much that should be taken.
Vinny_in_NJ,

I'm curious about which "free version of modeling software" you're referring to. Is it available to the rest of us?


motiv8ed
The one I'm referring to is from Right Capital Management. Can anyone get it, maybe. I watched a video on YouTube from an Advisor named Kevin Lum and in that video he offered access to it. I recognized the software he was using as software that other YouTube advisors are using so I signed up for it. Will my access to it expire at some point, I don't know. If you give his channel a look, find the video (I forget which one it was) and sign up you may get access to it.

Edit: I just want to put it here that I have no affiliation with either Kevin Lum or Right Capital Management
EricGold
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

livesoft wrote: Sun Mar 31, 2024 8:21 pm 4. Bogleheads should know that married couples can have over $120,000 (rough guess) in adjusted gross income and pay no Federal income taxes, so that could be a lot of Roth conversions.
I don't think your statement is correct.
For 2024, a couple filing jointly and both aged 65+ have a standard deduction of $32.2k
It follows that an AGI of over $32.2k has a taxable income greater than zero

You may have meant that such a couple can have an AGi up to $126,500 and not venture into the 22% tax bracket. This is true because the 22% tax bracket starts at $94,300

BTW, here is a formula can use in Google Sheets for 2024 federal taxes on the taxable income amount up to $383.9k
Change taxable_income to whatever cell you place the taxable income amount, or name that cell.

=IFS(
taxable_income>201050,34337+0.24*(taxable_income-201050),
taxable_income>94300,10852+0.22*(taxable_income-943000),
taxable_income>23200,2320+0.12*(taxable_income-23200),
TRUE,taxable_income*0.1)
Last edited by EricGold on Tue Apr 02, 2024 8:46 am, edited 2 times in total.
livesoft
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by livesoft »

EricGold wrote: Tue Apr 02, 2024 7:32 am
livesoft wrote: Sun Mar 31, 2024 8:21 pm 4. Bogleheads should know that married couples can have over $120,000 (rough guess) in adjusted gross income and pay no Federal income taxes, so that could be a lot of Roth conversions.
I don't think your statement is correct.
For 2024, a couple filing jointly and both aged 65+ have a standard deduction of $32.2k
It follows that an AGI of over $32.2k has a taxable income greater than zero

You may have meant that such a couple can have an AGi up to $126,500 and not venture into the 22% tax bracket. This is true because the 22% tax bracket starts at $94,300
Tax-prep software for 2023 shows that for the following situation the married couple has $8 Federal income tax:
Suppose we are a married couple over age 65 with a Roth conversion of $30.7K, $49.3K of qualified dividends, and $40K of LT capital gains? That is AGI of $120K.

Sure, "taxable income" Line 15 is $89,300 but the tax rate is 0% for most of it leading to a total federal income tax of $8. With $50 less of qualified dividends OR LTCG, the tax goes to $0. I suppose with the higher standard deduction in 2024 that the numbers would be slightly different.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by David Jay »

EricGold wrote: Tue Apr 02, 2024 7:32 am
livesoft wrote: Sun Mar 31, 2024 8:21 pm 4. Bogleheads should know that married couples can have over $120,000 (rough guess) in adjusted gross income and pay no Federal income taxes, so that could be a lot of Roth conversions.
I don't think your statement is correct.
For 2024, a couple filing jointly and both aged 65+ have a standard deduction of $32.2k
It follows that an AGI of over $32.2k has a taxable income greater than zero

You may have meant that such a couple can have an AGi up to $126,500 and not venture into the 22% tax bracket. This is true because the 22% tax bracket starts at $94,300

BTW, here is a formula can use in Google Sheets for 2024 federal taxes on the taxable income amount up to $383.9k. Change taxable_income to whatever cell you place the taxable income amount, or name that cell.

=IFS(
taxable_income>201050,34337+0.24*(taxable_income-201050),
taxable_income>94300,10852+0.22*(taxable_income-943000),
taxable_income>23200,2320+0.12*(taxable_income-23200),
TRUE,M22*0.1)
How about long term capital gains of $89,250 in addition to the standard deduction?
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livesoft
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by livesoft »

David Jay wrote: Tue Apr 02, 2024 8:17 amHow about long term capital gains of $89,250 in addition to the standard deduction?
Indeed, but it is unlikely to have such a LTCG without some dividends, but make those dividends 100% qualfiied like they are from VLCAX. :)
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EricGold
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

livesoft wrote: Tue Apr 02, 2024 8:13 am Tax-prep software for 2023 shows that for the following situation the married couple has $8 Federal income tax:
Suppose we are a married couple over age 65 with a Roth conversion of $30.7K, $49.3K of qualified dividends, and $40K of LT capital gains? That is AGI of $120K.

Sure, "taxable income" Line 15 is $89,300 but the tax rate is 0% for most of it leading to a total federal income tax of $8. With $50 less of qualified dividends OR LTCG, the tax goes to $0. I suppose with the higher standard deduction in 2024 that the numbers would be slightly different.
You have picked an interesting extreme corner case, but I don't think the taxable income is correct
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by livesoft »

EricGold wrote: Tue Apr 02, 2024 8:26 am You have picked an interesting extreme corner case, but I don't think the taxable income is correct
That case is not extreme to me because I live that extreme case with some more extreme things reported to the IRS, such as Foreign Tax Credit, Charitable Deductions, 401(k) contribution of almost all my earned income.

But go ahead and use tax-prep software to see if the "taxable income" I mentioned is correct or not.
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EricGold
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

livesoft wrote: Tue Apr 02, 2024 8:30 am
EricGold wrote: Tue Apr 02, 2024 8:26 am You have picked an interesting extreme corner case, but I don't think the taxable income is correct
That case is not extreme to me because I live that extreme case with some more extreme things reported to the IRS, such as Foreign Tax Credit, Charitable Deductions, 401(k) contribution of almost all my earned income.

But go ahead and use tax-prep software to see if the "taxable income" I mentioned is correct or not.
I don't bother with tax-prep software, I prefer to understand and apply the rules. Your LTCG and Qualified Divs do not add to your taxable income.
You presented an extreme corner case. By that I mean you can count on one thumb the number of people who fall into or near your specific example. The more general point of acquiring LTCG taxed assets or Qual Divs as a tax and investment strategy is muddying the waters. It would be like proclaiming that anybody can have an income of $1M with a tax of zero. Sure, if you are only pulling money from a Roth. It would be correct because the AGI and the taxable income are zero
Last edited by EricGold on Tue Apr 02, 2024 9:27 am, edited 3 times in total.
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

Based on what I've seen - capital gains 0% bracket and top of 12% tax bracket are off by a little with capital gains being slightly lower. It is possible to have a 65 YO couple to have an income of $126,350 in all capital gains and no other income to have $0.00 in taxes. The top of the capital gains 0% tax bracket for a married couple is $94,050 AGI.
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Tycoon
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Tycoon »

EricGold wrote: Tue Apr 02, 2024 8:26 am I don't bother with tax-prep software, I prefer to understand and apply the rules.
Does the example presented not apply the rules? If they do, are they not understood?
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EricGold
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

Vinny_in_NJ wrote: Tue Apr 02, 2024 8:52 am Based on what I've seen - capital gains 0% bracket and top of 12% tax bracket are off by a little with capital gains being slightly lower. It is possible to have a 65 YO couple to have an income of $126,350 in all capital gains and no other income to have $0.00 in taxes. The top of the capital gains 0% tax bracket for a married couple is $94,050 AGI.
I'm not positive I understand LTCG taxation but IIUC there will be taxes of 15% on (126,350-94,050) in your example
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

Tycoon wrote: Tue Apr 02, 2024 8:55 am
EricGold wrote: Tue Apr 02, 2024 8:26 am I don't bother with tax-prep software, I prefer to understand and apply the rules.
Does the example presented not apply the rules?
The confusion is the calculator's taxable income. I'd have to review a 1040 to be sure, but I think the Qual Divs and LTCG are above the AGI, and the taxable income is AGI less deductions

I don't argue with calculators because the numbers they spit out are opaque. I encourage everybody to gain a measure of financial literacy.
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Vinny_in_NJ
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by Vinny_in_NJ »

EricGold wrote: Tue Apr 02, 2024 8:58 am
Vinny_in_NJ wrote: Tue Apr 02, 2024 8:52 am Based on what I've seen - capital gains 0% bracket and top of 12% tax bracket are off by a little with capital gains being slightly lower. It is possible to have a 65 YO couple to have an income of $126,350 in all capital gains and no other income to have $0.00 in taxes. The top of the capital gains 0% tax bracket for a married couple is $94,050 AGI.
I'm not positive I understand LTCG taxation but IIUC there will be taxes of 15% on (126,350-94,050) in your example
I could be wrong on this because I really don't know tax codes but there should be $0 federal capital gains tax up to an AGI of $94,050 for a married couple. I think it holds true for qualified dividends as well. The 15% capital gains tax starts at $94,051 AGI. I don't use tax software but a lot of advisor videos and tax articles mention this. Again, I could be 100% wrong on this.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

Vinny_in_NJ wrote: Tue Apr 02, 2024 9:23 am I could be wrong on this because I really don't know tax codes but there should be $0 federal capital gains tax up to an AGI of $94,050 for a married couple.
I think that is right. Your earlier statement applied the standard deduction in the AGI calculation. In the contrived example of $94k LTCG and no other gross income, taxes are zero. However, in the even more contrived example of $124k LTCG and no other gross income then (124-94) is taxed at a 15% rate

I think. Lots of people know the rules better than me so I hope one comes by and corrects any errors I have made.
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by steadyosmosis »

EricGold wrote: Tue Apr 02, 2024 8:43 am
livesoft wrote: Tue Apr 02, 2024 8:30 am
EricGold wrote: Tue Apr 02, 2024 8:26 am You have picked an interesting extreme corner case, but I don't think the taxable income is correct
That case is not extreme to me because I live that extreme case with some more extreme things reported to the IRS, such as Foreign Tax Credit, Charitable Deductions, 401(k) contribution of almost all my earned income.

But go ahead and use tax-prep software to see if the "taxable income" I mentioned is correct or not.
I don't bother with tax-prep software, I prefer to understand and apply the rules. Your LTCG and Qualified Divs do not add to your taxable income.
You presented an extreme corner case. By that I mean you can count on one thumb the number of people who fall into or near your specific example. The more general point of acquiring LTCG taxed assets or Qual Divs as a tax and investment strategy is muddying the waters. It would be like proclaiming that anybody can have an income of $1M with a tax of zero. Sure, if you are only pulling money from a Roth. It would be correct because the AGI and the taxable income are zero
Like Livesoft, my tax return is also 'an extreme corner case'.
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EricGold
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Re: Anyone have thoughts on William Reichenstein's withdrawal strategy?

Post by EricGold »

steadyosmosis wrote: Wed Apr 03, 2024 7:04 am
Like Livesoft, my tax return is also 'an extreme corner case'.
That's nice
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