Where to withdraw money for spending?

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vest74
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Where to withdraw money for spending?

Post by vest74 » Tue Aug 13, 2019 11:14 am

Married filing jointly, 69 yrs. old. $65K income plus reinvested div's and cap gains of $15k. We cover bills just fine but extra's and starting to spend more. Have trad, roth, rollover, 457(b).
Was wondering what the wisest way to withdraw money now - maybe $10K now and then to cover travel etc?
Thanks in advance

livesoft
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Re: Where to withdraw money for spending?

Post by livesoft » Tue Aug 13, 2019 11:17 am

It seems you are close to getting forced withdrawals in the form of RMDs. I'd start with those.
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Topic Author
vest74
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Re: Where to withdraw money for spending?

Post by vest74 » Tue Aug 13, 2019 11:51 am

Need money before 70 1/2 .........

megabad
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Re: Where to withdraw money for spending?

Post by megabad » Tue Aug 13, 2019 12:08 pm

vest74 wrote:
Tue Aug 13, 2019 11:51 am
Need money before 70 1/2 .........
He meant withdraw funds from tax deferred accounts prior to 70.5 and RMDs. Withdrawing money from the tax deferred accounts prior to age 70.5 would reduce your RMDs. This can be a good strategy for some.

Unfortunately, you haven't provided enough information to really discern whether this is wise. I would recommend posting in the generally accepted format shown here (viewtopic.php?f=1&t=6212) for more detailed replies.

dbr
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Re: Where to withdraw money for spending?

Post by dbr » Tue Aug 13, 2019 12:46 pm

megabad wrote:
Tue Aug 13, 2019 12:08 pm
vest74 wrote:
Tue Aug 13, 2019 11:51 am
Need money before 70 1/2 .........
He meant withdraw funds from tax deferred accounts prior to 70.5 and RMDs. Withdrawing money from the tax deferred accounts prior to age 70.5 would reduce your RMDs. This can be a good strategy for some.

Unfortunately, you haven't provided enough information to really discern whether this is wise. I would recommend posting in the generally accepted format shown here (viewtopic.php?f=1&t=6212) for more detailed replies.
Right. It is mainly a tax question and with taxes the devil is in the details.

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ruralavalon
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Re: Where to withdraw money for spending?

Post by ruralavalon » Tue Aug 13, 2019 1:00 pm

dbr wrote:
Tue Aug 13, 2019 12:46 pm
megabad wrote:
Tue Aug 13, 2019 12:08 pm
vest74 wrote:
Tue Aug 13, 2019 11:51 am
Need money before 70 1/2 .........
He meant withdraw funds from tax deferred accounts prior to 70.5 and RMDs. Withdrawing money from the tax deferred accounts prior to age 70.5 would reduce your RMDs. This can be a good strategy for some.

Unfortunately, you haven't provided enough information to really discern whether this is wise. I would recommend posting in the generally accepted format shown here (viewtopic.php?f=1&t=6212) for more detailed replies.
Right. It is mainly a tax question and with taxes the devil is in the details.
Right, probably better to withdraw from tax-deferred accounts, but cannot say for sure without more details.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
vest74
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Re: Where to withdraw money for spending?

Post by vest74 » Tue Aug 13, 2019 9:43 pm

I guess maybe start taking from trad ira's but that is taxed.........
Debt: No Debt
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 4% State
State of Residence:IN.
Age:69
Desired Asset allocation: 40% stocks /55% bonds 5% Reserve

Topic Author
vest74
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Re: Where to withdraw money for spending?

Post by vest74 » Tue Aug 13, 2019 9:46 pm

I currently am at desired allocations

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GerryL
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Re: Where to withdraw money for spending?

Post by GerryL » Tue Aug 13, 2019 10:05 pm

OP,
In your original message you indicate you have reinvested dividends and capital gains. Is that in a taxable account? If so, why not stop reinvesting and use that as another income flow until you have to take RMDs? You're already paying taxes on divs and CG from a taxable account.That's what I started doing when I retired at 66. It was unsettling at first to stop reinvesting, but isn't that why we saved all that money in the first place?

Otherwise, go ahead and start drawing from your tax-deferred account and let your Roth continue to grow.

suemarkp
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Re: Where to withdraw money for spending?

Post by suemarkp » Tue Aug 13, 2019 10:21 pm

There is no 15% tax bracket (except for long term capital gains), so are you in the 12% bracket or the 22%? I'm thinking with the income sources you listed, it would be the 12% bracket which would keep the long term capital gains in the 0% bracket (a nice place to be).

Take a look at how much your RMDs are going to be. Is that going to push you into a higher tax bracket? If so, perhaps take out more from those tax deferred accounts now (but not the Roth) to get you close to the top of the 12% tax bracket. That would be just slightly over $100K of income. Put that in taxable if you don't need to spend it, ideally in something that pays long term capital gains and long term dividends.

If you're already in the 22% bracket, then I'd just take out what you need when you need it, or as RMDs demand.
Mark | Kent, WA

randomguy
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Re: Where to withdraw money for spending?

Post by randomguy » Tue Aug 13, 2019 10:58 pm

vest74 wrote:
Tue Aug 13, 2019 11:14 am
Married filing jointly, 69 yrs. old. $65K income plus reinvested div's and cap gains of $15k. We cover bills just fine but extra's and starting to spend more. Have trad, roth, rollover, 457(b).
Was wondering what the wisest way to withdraw money now - maybe $10K now and then to cover travel etc?
Thanks in advance
which ever way minimizes your taxes over your lifespan. That is a bit tricky to figure out:)

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David Jay
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Re: Where to withdraw money for spending?

Post by David Jay » Wed Aug 14, 2019 9:26 pm

vest74 wrote:
Tue Aug 13, 2019 9:43 pm
I guess maybe start taking from trad ira's but that is taxed.........
A traditional IRA will be taxed regardless. The IRS hasn’t gotten their cut yet and they want it. Even if you pass it on, the heirs will have to make RMD withdrawals and pay taxes.
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Topic Author
vest74
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Re: Where to withdraw money for spending?

Post by vest74 » Wed Aug 14, 2019 11:10 pm

Will get RMD's of $24K in 1.5 yrs. from rollover, trad, and 457(b) plans. Have 450K in taxable account

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ruralavalon
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Re: Where to withdraw money for spending?

Post by ruralavalon » Thu Aug 15, 2019 8:04 am

vest74 wrote:
Tue Aug 13, 2019 11:14 am
Married filing jointly, 69 yrs. old. $65K income plus reinvested div's and cap gains of $15k. We cover bills just fine but extra's and starting to spend more. Have trad, roth, rollover, 457(b).
Was wondering what the wisest way to withdraw money now - maybe $10K now and then to cover travel etc?
Thanks in advance
Are you currently retired?
vest74 wrote:
Tue Aug 13, 2019 9:43 pm
I guess maybe start taking from trad ira's but that is taxed.........
Debt: No Debt
Tax Filing Status: Married Filing Jointly
Tax Rate: 15% Federal, 4% State
State of Residence:IN.
Age:69
Desired Asset allocation: 40% stocks /55% bonds 5% Reserve
There currently is no 15% federal tax bracket.

Here are methods you can use to estimate your federal tax bracket. First estimate your "taxable income". money chimp, "Tax Calculator". Or if your income, deductions, credits, etc. are fairly consistent from year to year, then look at line 43 on your 1040 tax return for last year for your "taxable income". Then use your "taxable income" to estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".

vest74 wrote:
Wed Aug 14, 2019 11:10 pm
Will get RMD's of $24K in 1.5 yrs. from rollover, trad, and 457(b) plans. Have 450K in taxable account
How much are your annual expenses in retirement (including taxes, health care, travel and "extras")? How much are your annual Social Security benefits? Will your Required Minimum Distributions (RMDs) and Social Security cover all expenses, or be more than or less than needed, and by how much?

I suggest turning off any automatic reinvestment you have set up in the taxable account. That way (after a year) you will never have to deal with any short-term capital gains in that account.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

RadAudit
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Re: Where to withdraw money for spending?

Post by RadAudit » Thu Aug 15, 2019 10:13 am

ruralavalon wrote:
Thu Aug 15, 2019 8:04 am
I suggest turning off any automatic reinvestment you have set up in the taxable account. That way (after a year) you will never have to deal with any short-term capital gains in that account.
Concur with cutting off automatic reinvestments in the taxable account.

Could be wrong.

Edited because I was wrong. Apologies.
Last edited by RadAudit on Fri Aug 16, 2019 5:32 am, edited 2 times in total.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

trueblueky
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Re: Where to withdraw money for spending?

Post by trueblueky » Thu Aug 15, 2019 2:28 pm

vest74 wrote:
Tue Aug 13, 2019 11:14 am
Married filing jointly, 69 yrs. old. $65K income plus reinvested div's and cap gains of $15k. We cover bills just fine but extra's and starting to spend more. Have trad, roth, rollover, 457(b).
Was wondering what the wisest way to withdraw money now - maybe $10K now and then to cover travel etc?
Thanks in advance
Standard deduction = $24,400 MFJ next year. Plus $2600 for both being 65, means your first $27,000 is not taxed. 65-27 = 38k ordinary income. About half of that is taxed at 10% with the remainder at 12%. LTCG and qualified dividends are taxed at 0% in that range.

The top of the 12% bracket is $78,950. The top of the 0% bracket for capital gains/dividends is $78,750, so just a little different. Add the standard deduction to that and you can easily exceed $100,000 within the 12% bracket for ordinary income and 0% for LTCG and capital gains.

If RMD and Social Security will put you in a higher bracket soon, you may want to take from the tax-advantaged accounts now by Roth conversion or spending from them. Use a tax program to see what is best.

Topic Author
vest74
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Re: Where to withdraw money for spending?

Post by vest74 » Sat Aug 17, 2019 12:18 pm

So, like last year our Social Security was taxed at like 85% because div's and Cap G. are counted for SS reasons.............

I forgot that I did start taking American Funds div's and Cap G. (ranges from 12K to 20K per yr.) - not reinvesting but now will also start to take the Vanguard Funds div's and Cap G. but only 2K/yr

Really gets difficult to figure when if there is money left over at death the taxable accounts will all get the "step up" so this where I struggle..........IRA's spend or Taxable account :?

Maybe gotta figure to spend all or leave some for the 3 kids(probably will) so that changes the picture correct?

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chickadee
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Re: Where to withdraw money for spending?

Post by chickadee » Sun Aug 18, 2019 1:49 pm

You might run simulations here:

https://www.i-orp.com/DI/extended.html

It helps to read the directions and to double check your entries and assumptions.

The program will show you what account to draw from and when in order to have the MOST discretionary income in retirement. If the goal is to live very frugally and leave a huge estate, there are other tools for that.

StealthRabbit
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Re: Where to withdraw money for spending?

Post by StealthRabbit » Sun Aug 18, 2019 2:39 pm

Good advice above.

Generally one would draw any cash needs from taxable accts (Trad IRA, 401k, 403b, personal accts...) age 65 - 70 to reduce RMD funds.

But each personal tax situation / objectives are different. Do run scenarios to suit your objectives (including Roth Rolls).

For inheritance...
with healthy self / spouse you may be looking at 20 - 25 yrs before estate needs to be settled.
You can tailor a plan to get to where you need top be (personal finances) and annually gift to kids starting now (if reasonable to do so).
Or other options... based on your personal / family objectives.

Ours went to a Donor Advised Fund, and kids will be successor advisers to the distributions from DAF, including transferring the assets equitably to their own DAFs.

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