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Best strategy to draw from retirement plan assets?

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  • Retired doc
    replied
    Great advice so far. I have been reading through the Tangler link.

    The Roth conversion to ease RMD is interesting. I am concerned about the 5 year prohibition against withdrawing funds from a Roth conversion. I would postpone this until 2024. I can keep my taxable income below the threshold to trigger capital gains taxes next year and I plan to sell a piece of real estate in 2023.

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  • Larry Ragman
    replied
    Originally posted by Tim View Post
    "No advantage to tax deferred since the cash is not generating income"
    Slight consideration. Cash in the tax deferred does not trigger tax. Example would be having 3 three years of cash and withdrawing one year at a time pushes the taxable income into the future years. Do NOT pull out cash just because of the lack of income. Taxable income is the name of the game.
    Right. Shouldn’t pull it out of tax deferred just because it is cash. That generates a taxable transaction. Use the cash to buy equities in tax deferred. But if the OP wants cash in taxable, now might be a good time to tax loss harvest to generate the cash (~3 years of expenses) in taxable.

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  • Tim
    replied
    "No advantage to tax deferred since the cash is not generating income"
    Slight consideration. Cash in the tax deferred does not trigger tax. Example would be having 3 three years of cash and withdrawing one year at a time pushes the taxable income into the future years. Do NOT pull out cash just because of the lack of income. Taxable income is the name of the game.

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  • Larry Ragman
    replied
    There are two different issues: asset allocation and asset location. The link provided by Tangler gives a good starting point for how to withdraw across your various asset locations (I.e., your IRA and taxable). And JBME gives a good rationale to add Roth to the mix; that is, Roth conversions can level load the tax burden from RMDs. But all that is different than your asset allocation strategy. If you plan to hold cash and equities, in whatever mix, then I’d keep the cash in taxable. No advantage to tax deferred since the cash is not generating income.

    For the same reason, in terms of asset allocation I agree you need a higher equity allocation. Just a starting point, but I’d suggest 3 years of cash and the rest in equities. If you are very conservative then 5 years, but you are giving up the growth necessary to keep up with inflation. Anyway, the cash account is what I’d spend in addition to SS when you start that. Replenish the cash by selling equities in years the market is up. Just spend down in years the market is down.

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  • Hatton
    replied
    How sure are you of the inheritance.

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  • JBME
    replied
    if you expect to have an RMD issue you should reconsider not doing roth conversions. If you're in the 24% bracket or lower and have low state taxes, I'd consider roth conversions

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  • Tangler
    replied
    https://www.fiphysician.com/sources-...ment-strategy/

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  • Retired doc
    replied
    I hadn't planned on Roth conversion due to prohibition of withdrawals for 5 years. Approximately 1/3 cash in taxable accounts remainder assets in IRA. RMD will be an issue down the road.

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  • GasFIRE
    replied
    Not enough info. You’ll get better replies if we know how your portfolio is apportioned amongst taxable, pre-tax and Roth accounts. Will RMDs be a future issue? Are planning on any Roth conversions?

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  • Best strategy to draw from retirement plan assets?

    I retired at 59 in Jan 2020. We have been debt free and living on savings since then. My wife and I have IRA accounts with index funds and cash. Currently our ratio is 55/45 equities/cash. The cash plus social security would cover living expenses for 7+ years. After that 4% yearly withdrawal would exceed our needs.

    My asset allocation needs to be rebalanced and I'm thinking 65/45. I also expect to inherit a significant amount that will be tax free. Most of that will be mutual funds but the rest will be cash.

    When do you tap equities for expenses? Is it best to use the cash until it is reduced to a 3-4 year of living expense amount? Do you then only sell stocks in an up year? Is it best to sell the stocks monthly, quarterly, etc.? Does the 4% rule work if it is 60/40 index and cash versus index and bonds?

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