What's Your Exit Strategy (for tax-deferred retirement accounts)

[CuriousGeorgeTx]

4 - Converting to Roth to fill IRMA bracket closest to 24% FIT bracket, at least through 2025. Will consider 28% bracket for 26 & 27
6 - Plan regular QCDs when I turn 70 1/2, ~$50 k/yr
1 - RMDs when required at 73. At least initially we won’t need them, so will essentially convert to taxable investment account
5 - Leave to children who are likely to face similar incremental tax brackets to us in the long run
8 - sort of. I wouldn’t deliberately make less money just to spite the taxman. But I do keep most of my bonds in a tIRA as taxation (ordinary income) is the same and growth will likely be lower than equity funds.

[Normchad]

I plan to qualify for maximum ACA premium tax credits. So I’ll start spending the 401K once I qualify for Medicare.

We plan to start conversions in order to generate income for ACA eligibility.

That’s a great point too!

[Artsdoctor]

I think it's great to go through these exercises, not just now but in the future as well. The exist strategy you're thinking about when you're in your 50s is almost certainly going to be different than when you're in your 80s.

A few things that I'm impressed with now that I didn't pay that much attention to earlier:

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax.

3. The role of charitable giving becomes much more important later in life so don't convert everything you have to a Roth.

"2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax."
I understand the reason why folks speak about IRA (tax deferred) here but you can also use deductions outside of them.

Yes, that's of course true. But when handling my FIL's finances years ago, I was impressed by (1) how much medical bills can really add up [say, $100,000 range in one year], and (2) how much you can really withdraw from an IRA and pay virtually no tax on.

That's not to say that it's the only way to pay for long-term care, but it turns out to possibly be a relatively tax-friendly way of covering those expenses.

[ondarvr]

In my case it doesn't appear to matter much, my taxable accounts are larger than my deferred accounts. I will possibly do some Roth conversions, but only to prepare for filing single in the future. My wife's health isn't that good, and longevity runs in my family.

But even in the worst case scenario, the difference in taxes won't probably be enough to make a huge difference. Never out of 12% range on the high end.

[celia]

What's your exit strategy for your tax-deferred retirement accounts?

1, 2,...,, 11, 12

Did I miss any?

13. Use tax-deferred accounts to buy extra years of service credit.

That plus 4 and 6 were what we did back when we had tax-deferred accounts.

Now, they're all gone.

[Boglenaut]

But I *am* curious what happened to poor 7?

Good catch! I didn't think anyone would notice. That is the double-secret option only I have access to.

Seriously, I just did too many edits and messed it up.

[celia]

A few things that I'm impressed with now that I didn't pay that much attention to earlier:

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

I disagree. If the couple tends to do things together, they will probably eat the same food and do activities (exercise) together. So their health conditions have a decent chance of being similar.

2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax.

Or those deductions can cancel out some capital gains.

[smitcat]

I think it's great to go through these exercises, not just now but in the future as well. The exist strategy you're thinking about when you're in your 50s is almost certainly going to be different than when you're in your 80s.

A few things that I'm impressed with now that I didn't pay that much attention to earlier:

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax.

3. The role of charitable giving becomes much more important later in life so don't convert everything you have to a Roth.

"2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax."
I understand the reason why folks speak about IRA (tax deferred) here but you can also use deductions outside of them.

Yes, that's of course true. But when handling my FIL's finances years ago, I was impressed by (1) how much medical bills can really add up [say, $100,000 range in one year], and (2) how much you can really withdraw from an IRA and pay virtually no tax on.

That's not to say that it's the only way to pay for long-term care, but it turns out to possibly be a relatively tax-friendly way of covering those expenses.

"That's not to say that it's the only way to pay for long-term care, but it turns out to possibly be a relatively tax-friendly way of covering those expenses."
As long as you can do these two things at the same time...
1. keep a large enough balance in the tax deferred late enough in age to make a difference
2. make sure that keeping that larger balance in a tax defferred account is worth it vs another strategy

[chemocean]

I am prepared for this exit strategy, but it would not be my first choice for taking tax-deferred funds out tax-free:

Spend my tax-deferred funds on end-of-life, long-term care medical expenses before I make my last exit and have most of the funds deductible on itemized tax returns.

[JBTX]

What's your exit strategy for your tax-deferred retirement accounts?

What goes up, must come down. What comes in, must go out. Someday, whatever we put into a tax-deferred accounts, plus growth, must come out. This is something we should think about even early in our careers when the balances are low because they tend to take on a life of their own when they start growing.

So, whether you are just starting out or already into RMD range, what is your exit strategy? Which options apply? How much of each?

1. Required Minimum Distributions (RMD). YES
2. Income to spend after age 59.5 YES
3. Income to spend using Rule of 55 NO
4. Conversions to Roth. YES
5. Leave for loved ones, let them pay the tax. MINIMIZE THIS, CONVERT TO ROTH AS MUCH AS POSSIBLE
6. Charity (escapes the tax man). PROBABLY NOT
8. Prevent or restrain growth through very conservative investment so less to take out. TO A DEGREE
9. Simply don't put any into tax deferred accounts. N/A
10. Withdraw with penalties while young, cash out any accounts when I change jobs, etc. NO
11. Withdraw without penalty for specified exceptions while under the age limit NO
12. That is far off, so I never thought about it.

Did I miss any?

[Wannaretireearly]

Retire earlier? Roth conversions…

[Artsdoctor]

A few things that I'm impressed with now that I didn't pay that much attention to earlier:

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

I disagree. If the couple tends to do things together, they will probably eat the same food and do activities (exercise) together. So their health conditions have a decent chance of being similar.

2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax.

Or those deductions can cancel out some capital gains.

Of course I wish you were correct. It's painful to contemplate the death of a spouse.

Unfortunately, it is far more common than one will die well before the other. The lifestyles are important, but there are so many things that go into health.

The Kitces article from years ago is probably one of the best since the graphs are so clear, but there are many, many studies looking at this.

https://www.kitces.com/blog/life-expect ... survivors/

[sc9182]

What's your exit strategy for your tax-deferred retirement accounts?

What goes up, must come down. What comes in, must go out. Someday, whatever we put into a tax-deferred accounts, plus growth, must come out. This is something we should think about even early in our careers when the balances are low because they tend to take on a life of their own when they start growing.

So, whether you are just starting out or already into RMD range, what is your exit strategy? Which options apply? How much of each?

1. Required Minimum Distributions (RMD)
2. Income to spend after age 59.5
3. Income to spend using Rule of 55
4. Conversions to Roth
5. Leave for loved ones, let them pay the tax.
6. Charity (escapes the tax man)
8. Prevent or restrain growth through very conservative investment so less to take out.
9. Simply don't put any into tax deferred accounts
10. Withdraw with penalties while young, cash out any accounts when I change jobs, etc.
11. Withdraw without penalty for specified exceptions while under the age limit
12. That is far off, so I never thought about it.

Did I miss any?

We are still in Accumulation phase, ways to go; however our general (adaptive as we go) strategy towards Tax-deferred/tax-preferred accounts:

Don't disturb/knee-cap their growth staring at 40-50 year highest-possible-uninterrupted-growth projections.

Regarding points 1-6 & 8-12: many a folks shared their good wisdom - pick your choice of good decision ..

1b & 6b) Consider QCD if amounts grow excessively large (which to us - we consider a good problem!!)

7) Allow us to add (7) -- use large Pre-Tax contributions/deductions to potentially to Qualify for various things - FAFSA, Child-tax credit, IRA vehicle purchase AGI-limits, if applicable ACA credits/CSRs etc., among other benefits (not necessarily trying to catch all the benefits -- but sharing these possibilities here); At low-end "teen persuation" details lot more benefits of keeping AGI low -- search for "teen persuation" threads ..
13) Use some (hopefully a sufficient) income towards ACA 140% FPL needs in non-ACA states
14) Use large Pre-Tax towards LTC/nursing/ccrc/memory-care among other old-age care, and/or large deductible medical expenses in later years
15) We could use them towards house down-payment (is it $10K/person lifetime, is it still allowed ?)
16) We can take a loan (in 401/40x accounts) upto $50K
17) I know this sounds silly -- in case of ugly large financial personal black-swan -- we be happy to raid what-appears-to-be too large a Tax-deferred accounts (assuming that they are pretty large of course) -- either before 55.5/SEPP/59.5 or any age there afterwards. It is your money after all, and you got boatloads of big-moneys in there (right !? Isn't it the point of this thread anyway !?)
18) Continue to contribute and allow these accounts to grow (let these trees grow to the Sky!) -- as we don't have double-max pensions, nor we intend to depend on inheritance from rich-Aunts/uncles. We prefer to go Big/lots-of-monies (hence, lots of taxes), rather than go Broke/penury with attempting to grow our Tax-deferred to the Sky.
19) Allow it to grow pretty large to be able for these accounts to absorb financial hiccups (SORR, market slumps, personal setbacks such as disability, early FIRE/fired, divorce, and/or death among other possible risks)
20) Try to keep Pre-Tax accounts/monies mostly safe/protect from - third party purveyors/lawsuits -- ideally with ERISA protection and/or state IRA protections
21) If any of our kids (or grand-kids down the line) end-up being not so successful, nor in their highest tax-brackets -- yes, we be happy to pass Pre-tax accounts to those kids/grandkids (directly, or thru trusts - we will cross that bridge when we get there) -- while we leave Step-Up basis accounts and/or Roth/MBR accounts/amounts to successful ones
22) If the Pre-Tax amounts indeed get really huge - we might leave as endowment fund at local/research Univ/Institute/Non-Profit/Museum/Charity/Scholarship-fund/help-poor-hungry-kids among gazillion possible charitable causes
23) Use decent chunks towards - "The Final, Definitive Thread on Brokerage Transfer Bonuses": viewtopic.php?t=196884&start=6700
24) If HSA is considered part of this discussion -- love to grow it to the Sky as well (while saving receipts) -- we could withdraw using saved-receipts during high-income years (or Roth-conversions years) to keep AGI/MAGI under various phaseouts/torpedoes
25) We use Tax-deferred (hopefully-large-in-future) to adjust our Asset-allocation (and/or asset location) in balance -- we don't have to worry about Dividends-leak, nor taxes upon buys/sales of ETFs/stocks, nor worry-about if any brokerage messes-up cost-basis-tracking/lot-tracking. Peace of mind it is !!
26) Ability to use Tax Geo-Arbitrage -- save/contribute/grow in/while-residing-in high-income-tax State., retire to low/no-income-tax state (of course, you could as well end-up doing this in reverse - thus getting dinged as well -- but this is about Personal Finance )

Oh well - time for a big-coffee - if more idears/suggestions come to mind - will update this post later.

[THY4373]

13. Use tax-deferred accounts to buy extra years of service credit.

I am going to use a combination of 2/3/4 and possibly 13. I have a decent amount of tax deferred as well as a fully inflation index pension and of course SS. I can delay my pension when I retire and still receive my retiree health benefits. I also plan to retire (hopefully) before 59.5. So my plan is to delay pension and spend down and Roth convert my deferred assets before collecting my pension. Also depending on how the market does I may buy up my pension some. I need to run some numbers closer to retirement. Right now I am hoping to retire 56-57.

[tenkuky]

A few things that I'm impressed with now that I didn't pay that much attention to earlier:

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

I disagree. If the couple tends to do things together, they will probably eat the same food and do activities (exercise) together. So their health conditions have a decent chance of being similar.

2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax.

Or those deductions can cancel out some capital gains.

Actually almost 40% of longevity is due to genetics which would be different between the individuals, so regardless of habits etc.
Not wanting to derail the thread on an off-limits path.
From a financial standpoint, the 2 things that I keep an eye on to make an exit strategy: use up HSA soon(er) as spousal/heir treatment is not ideal; and be mindful of the sticker shock for survivor filing single.

[celia]

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

I disagree. If the couple tends to do things together, they will probably eat the same food and do activities (exercise) together. So their health conditions have a decent chance of being similar.

Actually almost 40% of longevity is due to genetics which would be different between the individuals, so regardless of habits etc.

Having a spouse (or not) in your later years is not just up to genetics but also choices if one re-marries. My dad was widowed in his late 50s but remarried in his 60s. Then he was widowed again and married again at 79. He made it to 99.5 before dying and wife #3 died a year later. He just liked being married.

DH's parents died a year apart in their 90's too.

[snic]

Here is a partial list of factors I came up with to consider when deciding if money should go into a Roth or Tax-deferred account, or if to do a conversion:

Possibility you may go from joint to single filer someday (spouse passes away), and how many years like that
How many years Spouse 1 works
How many years Spouse 2 works
When taking Social Security
Will there be years with low income for Roth conversions
Will there be years you can spend down the tax deferred efficiently
IRMAA impacts for Medicare
ACA impacts if early retired
Changes in 2026 brackets under current law
Changes in 2026 standard deduction under current law
Heirs' future bracket
Planned charitable giving
NIT 3.8% on dividends
Impact on Social Security taxation
ROTH IRA eligibility
Major medical expenses
Capital gains tax brackets
Possibility of moving to higher/lower tax state
Possibility of current state changing tax rates
How will pay the conversion tax.
More efficiently filling estate limit space with Roth (tax-deferred will cause more to go over limit, especially after 2026).
Impact on college financial aid and tax credits.
Impact for Roth contribution eligibility
etc.

While I use this list to determine contribution and conversion decisions, it will also impact exit strategy as well.

Good god. I despair of finding the optimal path forward among this forest of unknowable free parameters. (Heirs' future tax brackets? How should I know??)

"2. If you need a skilled nursing facility, many of those deductions can go on your Schedule A so you can definitely take out quite a lot from your IRA without much tax."
I understand the reason why folks speak about IRA (tax deferred) here but you can also use deductions outside of them.

Yes, that's of course true. But when handling my FIL's finances years ago, I was impressed by (1) how much medical bills can really add up [say, $100,000 range in one year], and (2) how much you can really withdraw from an IRA and pay virtually no tax on.

That's not to say that it's the only way to pay for long-term care, but it turns out to possibly be a relatively tax-friendly way of covering those expenses.

Assisted living and home care expenses become tax deductible when a doctor says you need that level of assistance. With decent health insurance, most of us don't spend enough on medical care to utilize the medical expense deduction, but it can be HUGE in the elderly. My mother has some variable annuities that are tax-deferred, and the low six figure medical expense deduction allows her to withdraw from those annuities tax free to pay for assisted living. Same would apply to IRA withdrawals, so I intend to leave a good chunk in tax deferred.

[soccerrules]

2. Income to spend after age 59.5
6. Charity (escapes the tax man)
5. Leave for loved ones, let them pay the tax.
4. Conversions to Roth
1. Required Minimum Distributions (RMD)

Not retired yet.
These apply--some more than others (will be 59 next remembrance of my birthing day) . Tried to put these into priority buuut, IDK??

[Artsdoctor]

1. It's very unlikely a married couple will both survive into their 90s together. It can happen but it's just not common. Going from Married Filing Jointly to Individual status on your tax return can be jarring so make plans for that.

I disagree. If the couple tends to do things together, they will probably eat the same food and do activities (exercise) together. So their health conditions have a decent chance of being similar.

Actually almost 40% of longevity is due to genetics which would be different between the individuals, so regardless of habits etc.

Having a spouse (or not) in your later years is not just up to genetics but also choices if one re-marries. My dad was widowed in his late 50s but remarried in his 60s. Then he was widowed again and married again at 79. He made it to 99.5 before dying and wife #3 died a year later. He just liked being married.

DH's parents died a year apart in their 90's too.

You're very fortunate to have had your dad for so long, and he was very fortunate to have had three remarkable marriages.

I'm always impressed by how some married couples seem to die within months of one another. It happened to my in-laws.

But I try to look at population statistics in aggregate since my personal experiences pale in comparison to what the larger population might experience as a whole.

The OP posited a question regarding an exit strategy for tax-deferred accounts. As a group, we can't discuss exit strategies from IRAs without discussing taxes. The age for RMDs has increased from 70-1/2 to 75, and there are many IRA balances now which would have been unimaginable just several years ago. Therefore, tax planning is now even more important than ever before for IRA account holders.

Despite the anecdotes we can all recount, the fact is that many surviving spouses will die unmarried. This is not morbid, it's just a fact (census statistics below). This will have very significant tax consequences for how the surviving spouse handles (and can plan for) distributions from tax-deferred accounts. It's perfectly reasonable to have a Plan A and a Plan B for depleting tax-deferred accounts, but it's very important to understand what is most likely to happen when formulating those plans.

https://www.census.gov/library/stories/ ... dults.html

[tibbitts]

What's your exit strategy for your tax-deferred retirement accounts?

1, 2,...,, 11, 12

Did I miss any?

13. Use tax-deferred accounts to buy extra years of service credit.

That plus 4 and 6 were what we did back when we had tax-deferred accounts.

Now, they're all gone.

Extra service credit - which I used some deferred funds to buy - is just transferring from one deferred pot to another, possibly a pot with (in my case) an earlier RMD, so not really an exit strategy vs. taking RMDs.

[Elric]

1, 4, 5, 6.
When I hit RMDs,.that may switch spending from taxable to RMD's.

[sc9182]

What's your exit strategy for your tax-deferred retirement accounts?

1, 2,...,, 11, 12

Did I miss any?

13. Use tax-deferred accounts to buy extra years of service credit.

That plus 4 and 6 were what we did back when we had tax-deferred accounts.

Now, they're all gone.

Extra service credit - which I used some deferred funds to buy - is just transferring from one deferred pot to another, possibly a pot with (in my case) an earlier RMD, so not really an exit strategy vs. taking RMDs.

++1

What surprises me - is the set of crowd who enjoys/loves pensions — and needing to take such pensions much earlier than age-75 RMDs., are the same crowd cringe about RMDs (while infact they are stuck taking monthly pensions much before age 75 !!).

Also, we like our Trad IRA - we would have some asset base left behind either for our own selves needs or to heirs ; where as with pensions - nothing passes to next gen (may be spousal/survivor benefit do up-to certain %)

[DSBH]

What's your exit strategy for your tax-deferred retirement accounts?

1. Required Minimum Distributions (RMD)
2. Income to spend after age

72.5,

4. Conversions to Roth

6. Charity (escapes the tax man)
8. Prevent or restrain growth through very conservative investment so less to take out.

5b) Plan to use all of the above tools to empty out the tax-deferred account by the latter of my life expectancy or spouse’s, else (5) Leave for loved ones, let them pay tax.

[billthecat]

Is there a good, free tool to recommend Roth conversions and when to start social security? My situation is a little tricky because once I retire (say, Jan. 1, 2025), I'll have very little ordinary income (~$5K) but my qualified income will be much larger (~$50K). As a result, I quickly become subject to "compound taxes" (i.e., my 10% income tax bracket is paired with more qualified income subject to 15% tax).

My tax rates for 2025 look to be 0% (standard ded.), then 25% (10%+15%), then 27% (12%+15%), then 22%, then 24%. And in 2026, it looks like it will be 0%, then 25% (10%+15%), then 30% (15%+15%), then 25%, then 28%. I would probably start social security once the conversions are done (to reduce the chances to triggering IRMAA). I want to minimize taxes, including IRMAA premiums which could be triggered by delaying social security as long as possible.

The second tricky part is that my traditional funds are invested in bonds, but would flip to stock upon conversion (and simultaneously doing the opposite in taxable, to maintain my overall desired asset allocation). (All the commentary I've seen about conversions seems to assume you're invested the same way before and after.)

I poked around RPM, and very quickly got overwhelmed. All I did is change my age, and multiple errors flashed across the spreadsheet. If not free, then paid? I'm curious about New Retirement, but I don't want to pay for it only to find out it can't model it (the free version hides whether it can account for the details of my situation - compound taxes and changing investments at conversion).

[freckles01]

What's your exit strategy for your tax-deferred retirement accounts?

What goes up, must come down. What comes in, must go out. Someday, whatever we put into a tax-deferred accounts, plus growth, must come out. This is something we should think about even early in our careers when the balances are low because they tend to take on a life of their own when they start growing.

So, whether you are just starting out or already into RMD range, what is your exit strategy? Which options apply? How much of each?

1. Required Minimum Distributions (RMD)
2. Income to spend after age 59.5
3. Income to spend using Rule of 55
4. Conversions to Roth
5. Leave for loved ones, let them pay the tax.
6. Charity (escapes the tax man)
8. Prevent or restrain growth through very conservative investment so less to take out.
9. Simply don't put any into tax deferred accounts
10. Withdraw with penalties while young, cash out any accounts when I change jobs, etc.
11. Withdraw without penalty for specified exceptions while under the age limit
12. That is far off, so I never thought about it.

Did I miss any?

My plan is to retire at 55 and utilize Rule of 55. 401k has about 700k with majority in Total Bonds w/preferred AA 70/30-60/40.

Single, no dependents, small pension (possible lump sum), rental income and will pay for healthcare once I retire- plan to flip flop ACA benefits one year and take money out of 401K the other year.

Plan to buy Treasury Bills/Muni(?) from the 401K to keep within AA.
How does one determine how much to leave in 401K for "future" use- medical bills? SNF?
I'm planning to leave about 300-400K in 401K but its just a random number I picked, not based on any solid reasoning...

Whatever is left after I die will go to charities.

[tibbitts]

I poked around RPM, and very quickly got overwhelmed. All I did is change my age, and multiple errors flashed across the spreadsheet. If not free, then paid? I'm curious about New Retirement, but I don't want to pay for it only to find out it can't model it (the free version hides whether it can account for the details of my situation - compound taxes and changing investments at conversion).

I haven't tried it but NewRetirement may have a free 14-day trial for the full version.

If you prefer a web application vs. spreadsheet and can wait until the new year, I believe Pralana will have replaced its spreadsheet product with a web version that will almost surely have the functionality you want.

Whatever software you choose I think that because it's a hobby, many Bogleheads tend to dismiss the amount of effort required to become confident that they're not making some minor error(s) - and not the kind the flashes across your screen - that can result in dramatically misleading results. In fact I think it would be dangerous to rely on the results from any one web application or spreadsheet without validating the results with another one, or at least posting your situation here and asking for opinions.

And even then you have to hope your assumptions turn out to be at least roughly correct.

[Boglenaut]

Here is a partial list of factors I came up with to consider when deciding if money should go into a Roth or Tax-deferred account, or if to do a conversion:

Possibility you may go from joint to single filer someday (spouse passes away), and how many years like that
How many years Spouse 1 works
How many years Spouse 2 works
When taking Social Security
Will there be years with low income for Roth conversions
Will there be years you can spend down the tax deferred efficiently
IRMAA impacts for Medicare
ACA impacts if early retired
Changes in 2026 brackets under current law
Changes in 2026 standard deduction under current law
Heirs' future bracket
Planned charitable giving
NIT 3.8% on dividends
Impact on Social Security taxation
ROTH IRA eligibility
Major medical expenses
Capital gains tax brackets
Possibility of moving to higher/lower tax state
Possibility of current state changing tax rates
How will pay the conversion tax.
More efficiently filling estate limit space with Roth (tax-deferred will cause more to go over limit, especially after 2026).
Impact on college financial aid and tax credits.
Impact for Roth contribution eligibility
etc.

While I use this list to determine contribution and conversion decisions, it will also impact exit strategy as well.

Good god. I despair of finding the optimal path forward among this forest of unknowable free parameters. (Heirs' future tax brackets? How should I know??)

I said it was a complex problem and you will never be sure to get the optimal solution. Sometimes we just need to take our best guess, but at least we considered them to reduce the chance of being blind-sided.

The one about heirs' future tax rates I came up with on my own, but since then I have seen several other folks mention it on this board, as well as a financial planner on YouTube who I really respect. It really is an insidious one; kids usually are in their prime earning years when the parents pass away. With the elimination of the stretch IRA, they really can get boxed in someday.

(PS - I meant "Roth IRA eligibility" above, and not "ROTH IRA eligibility". I know there is one poster on this board who gets annoyed and correctly points out it is a Senator's name and not an acronym.)

[blackbird]

Another vote for charity. I'll do QCDs instead of RMDs and leave the rest to charity. I consider it earmarked for that.

Blackbird

[THY4373]

++1

What surprises me - is the set of crowd who enjoys/loves pensions — and needing to take such pensions much earlier than age-75 RMDs., are the same crowd cringe about RMDs (while infact they are stuck taking monthly pensions much before age 75 !!).

Also, we like our Trad IRA - we would have some asset base left behind either for our own selves needs or to heirs ; where as with pensions - nothing passes to next gen (may be spousal/survivor benefit do up-to certain %)

To be clear my buying up my pension has nothing to do with RMDs. I'll do it or not based on whether it makes financial sense (I don't let the tax tail wag the dog). In my case my pension is fully inflation indexed and if my employer goes under we are in guns, ammo and canned food times so the loss of my pension will be the least of my worries.

Buying up my pension potentially allows me some combination of retire earlier/have greater income in retirement/longevity insurance. I don't and will not have a spouse so no concern there for me and my heir will likely inherit a seven figure portfolio mostly Roth and taxable in any event which is good enough for me. To me the pension is just another lever I can pull on to control when and how I retire.

I should also add outside of any pension buy up which I may or may not do, my pension is otherwise fully funded my employer and thus has zero impact on my savings otherwise.

[watchnerd]

What's your exit strategy for your tax-deferred retirement accounts?

What goes up, must come down. What comes in, must go out. Someday, whatever we put into a tax-deferred accounts, plus growth, must come out. This is something we should think about even early in our careers when the balances are low because they tend to take on a life of their own when they start growing.

So, whether you are just starting out or already into RMD range, what is your exit strategy? Which options apply? How much of each?

1. Required Minimum Distributions (RMD)
2. Income to spend after age 59.5
3. Income to spend using Rule of 55
4. Conversions to Roth
5. Leave for loved ones, let them pay the tax.
6. Charity (escapes the tax man)
8. Prevent or restrain growth through very conservative investment so less to take out.
9. Simply don't put any into tax deferred accounts
10. Withdraw with penalties while young, cash out any accounts when I change jobs, etc.
11. Withdraw without penalty for specified exceptions while under the age limit
12. That is far off, so I never thought about it.

Did I miss any?

2, 4, 8, and now they're those accounts are large and I'm nearing retirement, #9 (at least beyond employer match)

[celia]

What's your exit strategy for your tax-deferred retirement accounts?

1, 2,...,, 11, 12

Did I miss any?

13. Use tax-deferred accounts to buy extra years of service credit.

That plus 4 and 6 were what we did back when we had tax-deferred accounts.

Now, they're all gone.

Extra service credit - which I used some deferred funds to buy - is just transferring from one deferred pot to another, possibly a pot with (in my case) an earlier RMD, so not really an exit strategy vs. taking RMDs.

I see the tax-deferred account and the life-long pension as very different. The tax-deferred account has a limited amount of dollars in it. When it is empty, there's no more benefit for you. But the increased pension keeps paying out as long as you are alive (or the surviving spouse is alive). So far, I'm pretty sure we have already received back more dollars in the increased part of the pension than we paid in, although those dollars would have also grown had they stayed in a tax-deferred account.

We also didn't want to worry about investing the tax-deferred account dollars in a down market and facing increasing RMDs as we get older. We wanted simplification with a steady income stream, especially with cognitive decline found in both of our families.

Also, we like our Trad IRA - we would have some asset base left behind either for our own selves needs or to heirs ; where as with pensions - nothing passes to next gen (may be spousal/survivor benefit do up-to certain %)

We will also have a lot to pass to our heirs as the pensions and SS are more than our expenses, so the excess grows in taxable. And the converted accounts are now Roths which continue to grow for our heirs.

We just took a different path than you did.

[sc9182]

Also, we like our Trad IRA - we would have some asset base left behind either for our own selves needs or to heirs ; where as with pensions - nothing passes to next gen (may be spousal/survivor benefit do up-to certain %)

We will also have a lot to pass to our heirs as the pensions and SS are more than our expenses, so the excess grows in taxable. And the converted accounts are now Roths which continue to grow for our heirs.

We just took a different path than you did.

In absence of large Pension, let alone double-pensions of our age -- if you got anything less than a million (or need higher) in tIRAs -- its hard to retire simply based on age-70 SSes. If the tIRA is minimal and that one has double-max pensions, double-max-delayed SSes -- yes I understand - Roth conversion could possibly make sense (especially, the portions you don't need towards LTC costs, nor need for living/large expenses).

With that said - by going with increased pensions - it ain't cut down on taxes, not any more than RMDs made those any worse.

Glad you guys won the pension enhancement/buy-in opportunity -- like I said, for current set of folks working in private/public sector (non Govt/Mil/Unions etc) -- Pension is a DoDo bird .. Hence, for large-set of folks growing nest-egg., these folks have not much choice but to grow their tIRAs especially during working years (and/or possibly Roths - if marginal brackets work-better). And with large tIRAs - RMDs is an automatic consequence - can't convert large tIRAs into Roths now matter how hard one tries (without getting pushed up into much-higher marginal brackets due to conversions)

When someone sings RMD-fear song -- I ask only one question -- how small'ish is your tIRA, and how large your Double-max Pensions, and double-max-delayed-SSes been !? And how tax-efficiently one can do QCDs and/or pay for 2-5-10 years of possible LTC needs !?

[jimishooch]

Bridge to social security...

[FlamePoint]

1. Roth conversions through age 74 (we are currently 61). 60% of tax-deferred should be converted at this point. All equities in Roth, and bonds in tax-deferred.
2. SS at age 70 (both of us)
3. RMD’s at age 75. SS plus RMD’s will cover all living expenses, and then some. QCD’s will be used to manage taxes.
4. Roth is legacy for kids

[tibbitts]

I see the tax-deferred account and the life-long pension as very different. The tax-deferred account has a limited amount of dollars in it. When it is empty, there's no more benefit for you. But the increased pension keeps paying out as long as you are alive (or the surviving spouse is alive). So far, I'm pretty sure we have already received back more dollars in the increased part of the pension than we paid in, although those dollars would have also grown had they stayed in a tax-deferred account.

We also didn't want to worry about investing the tax-deferred account dollars in a down market and facing increasing RMDs as we get older. We wanted simplification with a steady income stream, especially with cognitive decline found in both of our families.

It's true that the pension is like an RMD that never varies and never can be depleted (in nominal terms), but in today's environment it wouldn't have been the same choice as it was 4 years ago. If I recall correctly the breakeven (not counting earnings on what would have been the invested balance) will be roughly 13 years. What would make me think about it differently today is that fixed income 4 years ago had seemingly very little prospect for earning much of anything, vs. what it's earning today. And if I'd known that inflation would have been what it has been that would have been another factor that would have discouraged buying the extra service.

[cheese_breath]

Roth conversions. Don't do that anymore as I now have twice as much in Roths as in tIRAs.

RMDs and QCDs as part of theRMDs.

Tax deductable medical expenses when DW was in long term medical care.

[MnD]

2. Income to spend after age 59.5 (Our IRA's)
3. Income to spend using Rule of 55 (My 401-K)
5. Leave for loved ones, let them pay the tax.
ALSO... Restrain growth through a 5% of annual portfolio balance SWR.

A lot of the hand-wringing I see about the "tax torpedo" are among folks that don't seem to have any utility for their portfolio wealth in retirement.
Not a problem for us!

[Jovby]

All of my IRA will go to charity, some now as annual QCDs, and the rest when I die, to Vanguard Charitable, to continue funding my QCD charities after I am gone. A good portion of my wife's IRA RMDs are going to charity now as QCDs. The balance of her IRA, and a smaller 457(b), will go to our two adult children. I have explained the benefit of having them inherit Roth IRAs rather than her traditional IRA. We have already converted a chunk of her IRA to a Roth IRA as a standby fund for our likely future CCRC entrance fee. Depending on our annual finances, we will look for further opportunities to convert portions of her remaining IRA to her Roth IRA to avoid high tax rates for our children after we die.

A portion of the CCRC entrance fee is considered per-paid medical expenses. It may be tax deductible depending on your overall tax situation. If so, it can come out of your IRa tax free.

[Zdex]

2. Is the closest, spend the tax-deferred retirement account first. It should be fairly well drained between planned retirement age of 60 to planned SS at age 70. This will leave taxable and roth accounts intact for 70 and after.

Is this what you are going to do? What are the mechanics? Take the amount, divide by ten, and simply pull that amount out each year?

[BradleyB]

IMO, there is no way to know the optimum strategy except in retrospect.

For example, Long Term Care. Both of my parents and my FIL needed zero $ due to very rapid declines. My MIL used hers for about 8 years I think. How do we figure that?

So due to substantial inheritances from both of our parents, we are doing just fine in retirement.

Priority #1- fund grandkids college as much as possible.
Priority #2- make sure we have enough to care for ourselves if the often-discussed Genworth LTC goes belly up.

Then it's just a matter of who pays taxes and when. Do we pay the piper and kids inherit after tax money? Or keep it in IRA's, which means they pay the tax? I would think that net, their spendable money would be similar. Either way, according to projections, both kids will get more than they can imagine, as weird as that feels.

[smitcat]

Also, we like our Trad IRA - we would have some asset base left behind either for our own selves needs or to heirs ; where as with pensions - nothing passes to next gen (may be spousal/survivor benefit do up-to certain %)

We will also have a lot to pass to our heirs as the pensions and SS are more than our expenses, so the excess grows in taxable. And the converted accounts are now Roths which continue to grow for our heirs.

We just took a different path than you did.

In absence of large Pension, let alone double-pensions of our age -- if you got anything less than a million (or need higher) in tIRAs -- its hard to retire simply based on age-70 SSes. If the tIRA is minimal and that one has double-max pensions, double-max-delayed SSes -- yes I understand - Roth conversion could possibly make sense (especially, the portions you don't need towards LTC costs, nor need for living/large expenses).

With that said - by going with increased pensions - it ain't cut down on taxes, not any more than RMDs made those any worse.

Glad you guys won the pension enhancement/buy-in opportunity -- like I said, for current set of folks working in private/public sector (non Govt/Mil/Unions etc) -- Pension is a DoDo bird .. Hence, for large-set of folks growing nest-egg., these folks have not much choice but to grow their tIRAs especially during working years (and/or possibly Roths - if marginal brackets work-better). And with large tIRAs - RMDs is an automatic consequence - can't convert large tIRAs into Roths now matter how hard one tries (without getting pushed up into much-higher marginal brackets due to conversions)

When someone sings RMD-fear song -- I ask only one question -- how small'ish is your tIRA, and how large your Double-max Pensions, and double-max-delayed-SSes been !? And how tax-efficiently one can do QCDs and/or pay for 2-5-10 years of possible LTC needs !?

"Hence, for large-set of folks growing nest-egg., these folks have not much choice but to grow their tIRAs especially during working years (and/or possibly Roths - if marginal brackets work-better)"
There are a nunber so folks at or near retirment now where the tax deferred is smaller than the taxable acount due to the availability of those choices at the time of employment. Similar that the Roth accounts are fairly new and the size of those could/would be restricted as well.

"If the tIRA is minimal and that one has double-max pensions, double-max-delayed SSes -- yes I understand - Roth conversion could possibly make sense (especially, the portions you don't need towards LTC costs, nor need for living/large expenses)."
Even without any pensions the Roth conversions can make a great amount of sense with smaller tax deferred and larger taxable accounts when you convert a few years in order to keep your tax rates down 'forever' after those initial conversions. LTC can be covered by LTC insurance for some near this age and larger living expenses can often come from LTCG (15%) which keeps overall taxes and effective rates very low.

"how large your Double-max Pensions"
I still do not know what this means but a single pension available now can easily be 6 figures and COLA adjusted.

"pay for 2-5-10 years of possible LTC needs !?"
LTCi is still viable for those that secured it earlier on - not sure on todays policies at all.

[smitcat]

Roth conversions. Don't do that anymore as I now have twice as much in Roths as in tIRAs.

RMDs and QCDs as part of theRMDs.

Tax deductable medical expenses when DW was in long term medical care.

Your overall strategy may very well be perfect but this statemnet alone is not a good reason to do or not do Roth conversions....
"Roth conversions. Don't do that anymore as I now have twice as much in Roths as in tIRAs."

[kleiner]

I retired earlier this year at 55 years old. Yesterday, I ran the Fidelity retirement planner (formerly R.I.P.). Under average market returns, my RMD maxes out at $400k. With everything else, if RMD is $400k, then my total income could be $500-600k/yr. That is way more than we need. This is the consequences of retiring early with a very high level of success. I am finally doing some serious analysis to determine my Roth conversion strategy. I'm thinking at a minimum I'll do Roth conversions on all the equities in the 401k. That will leave just bonds in the 401k, which will grow more slowly.

So I think I'll do: 1, 4, 6, 8

My wife and I are in a similar position - we currently have over $3M in tax deferred savings and are expecting another $1.5M when we get lump sum distributions from our respective pensions at age 65. If we did nothing, RMDs will be huge at age 75. I am retired but my wife is still working. Since she gets paid very well, we can't start Roth conversions until my wife retires.

I know this is a "tiny violin" situation so I hope this doesn't come across as whining

[capran]

2. Is the closest, spend the tax-deferred retirement account first. It should be fairly well drained between planned retirement age of 60 to planned SS at age 70. This will leave taxable and roth accounts intact for 70 and after.

Is this what you are going to do? What are the mechanics? Take the amount, divide by ten, and simply pull that amount out each year?

We switched to an ultra conservative investment approach when we retired and it still took me 10 years to get my IRA emptied (converted to Roth), and we still have spouses IRA to do, which would likely take another 10 years (she'll start her age 70 SS in a year, which will reduce the amount she can convert. And there would be no way to divide it by 10. Our formula is just to convert as much as we can and still stay just under the IRMAA surcharge income limits.

[tesuzuki2002]

I'm probably late, retiring at age 66 mid this year. I only then realized that RMDs would make Medicare IRMAA extra cost worse. DW and I mostly saved through 401k's so we have plenty that will hit RMDs. To reduce that, we did our first Roth conversion ever this year and will do so up to just below the IRMAA limit until RMD time. Had I understood years earlier, I would have started Roth conversions much earlier. We've sort of saved too much. Smallest violin comes out and plays....

Having saved too much at that stage is probably the better side of the trade to be on...

I'm a solid 20 years from "normal aged retirement" However, having done well and put away just shy of $3Million.. I'm beginning to think much more about the exit strategy... Portfolio has a life of it's own and no matter what I can throw at it... it does what it will do for the most part.

[fourwheelcycle]

A portion of the CCRC entrance fee is considered per-paid medical expenses. It may be tax deductible depending on your overall tax situation. If so, it can come out of your IRa tax free.

Yes, I am aware of that. We are planning to consider it in our financial planning if we enter a CCRC with a large entrance fee. If we take advantage of this tax strategy, it would allow us to spend-down part of my wife's IRA, which is headed to our children, without the need to pay other taxes to convert that amount to her Roth IRA.

[mike@jb]

I plan to qualify for maximum ACA premium tax credits. So I’ll start spending the 401K once I qualify for Medicare.

This is what we've done also. We start Medicare next year, and will start pulling much more out of the IRA in 2025.
RMD's start at 72 for us. The kids can have whatever is left.

[cheese_breath]

Roth conversions. Don't do that anymore as I now have twice as much in Roths as in tIRAs.

RMDs and QCDs as part of theRMDs.

Tax deductable medical expenses when DW was in long term medical care.

Your overall strategy may very well be perfect but this statemnet alone is not a good reason to do or not do Roth conversions....
"Roth conversions. Don't do that anymore as I now have twice as much in Roths as in tIRAs."

That’s a valid point. Let me elaborate.

DW’s 3 ½ years of long term nursing home care was expensive. But the medical deductions enabled me to withdraw a lot from my tIRA ‘tax free’ so to speak. I’d like to preserve this option for my DPOA / MPOA if I should ever need long term care.

My TIAA Traditional 3% guarantee tIRA is only partially converted to Roth. I stopped converting it when TIAA discontinued the 3% guarantee for new deposits.

So the bottom line is whatever is left in that IRA will be given in equal shares to the five children. If they each convert their shares into inherited IRAs and take RMDs over ten years, the tax hit shouldn’t be so bad. If any want to take lump sums instead, that’s their decision.

[JDCarpenter]

What's your exit strategy for your tax-deferred retirement accounts?

***

1. Required Minimum Distributions (RMD) {a byproduct of not totally exhausting the TIRA via conversions....}
2. Income to spend after age 59.5
...
4. Conversions to Roth
5. Leave for loved ones, let them pay the tax. [That could happen, but not really the plan]
6. Charity (escapes the tax man)
...
8. Prevent or restrain growth through very {relatively} conservative investment so less to take out.
...

...

We retired at 57/56, seriously lopsided, and with no source of assets or income other than our investments. (Eligible for Social Sec. under current rules, which if things don't change, we'll each take at 70 for longevity insurance.)

Had high AGI throughout careers, and were just old enough to only get a bit of the more liberal Roth rules. At retirement, we basically had a few tens of thousands in Roths, enough in taxable to take care of 3-4 years, and everything else in traditional IRA/401k accounts. When we were living off of taxable, we converted IRAs to the top of the 24% bracket. Once we were down to only IRA monies, we realized that we needed to be more aggressive in light of our annual spend. We have since converted to the top of the 32% bracket each year. We also put the Roth accounts 100% in equities; fingers crossed, it looks like we'll achieve parity between the types of accounts by the end of next year.

Leaning toward keeping a million in TIRA for end of life/assisted_living/Charity and the like. We should be able to achieve that by the time DW hits age 70....

FWIW, ACA wasn't a concern (we have been in non-qualified plans since shortly after retiring).

[MathWizard]

Spending

Roth conversions of excess between spending and top of 12/15% bracket, this will continue slightly beyond age 73

QCDs after age 70 1/2

Beyond Roth conversion, spending from tax deferred beyond QCDs will exceed RMDs.