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Question on 4% rule....

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  • Question on 4% rule....

    If you are predominantly taking money out of a Roth IRA or other non taxed vehicle (muni bonds, etc) in retirement, does the 4% rule drop to 3% or less.  In other words, does the 4% rule already account for the fact that part of the money will be lost to taxes so you adjust downward if you are getting any retirement money tax free?

  • #2
    No, the 4% rule did not take into account taxes. You need to take that fact into account when you calculate how much you have for retirement. Roth IRA can be withdrawn tax-free in retirement, but liquidating taxable accounts with capital gains and 401(k)s typically can't be.

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    • #3




      No, the 4% rule did not take into account taxes. You need to take that fact into account when you calculate how much you have for retirement. Roth IRA can be withdrawn tax-free in retirement, but liquidating taxable accounts with capital gains and 401(k)s typically can’t be.
      Click to expand...


      The 4% rule accounts for taxes, but it is an expense that must be paid out of the 4% you withdraw.  If you don't pay taxes on some or all of your withdrawals, your expenses will be lower than if you do.

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      • #4







        No, the 4% rule did not take into account taxes. You need to take that fact into account when you calculate how much you have for retirement. Roth IRA can be withdrawn tax-free in retirement, but liquidating taxable accounts with capital gains and 401(k)s typically can’t be.
        Click to expand…


        The 4% rule accounts for taxes, but it is an expense that must be paid out of the 4% you withdraw.  If you don’t pay taxes on some or all of your withdrawals, your expenses will be lower than if you do.u
        Click to expand...


        Taxes were not specifically addressed by the authors of the Trinity University study, but this way of thinking works as a way to adjust their results for the effect of taxes.

        -WSP

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