Best way to take money out of investments?

[frugal-one]

Is there a book or anywhere this information is readily available or is the only option to see a financial/tax advisor? I have managed our investments and done estate planning but am flummoxed as to the best option for withdrawal on investments.

[razz]

Being Canadian may make it quite different but I needed the advice of a CFP as withdrawal decisions were impacted by taxes, best returns longterm and consequences on fees. DH and I simply consolidated everything which made it easier to choose which to do first and best approach having it all under one umbrella.

[Tradd]

Is there a book or anywhere this information is readily available or is the only option to see a financial/tax advisor? I have managed our investments and done estate planning but am flummoxed as to the best option for withdrawal on investments.

Do you have an established relationship with a CPA for doing your taxes? Maybe start there for the tax implications.

[frugal-one]

We do not have a CPA and already have all our investments in one place. Today, in passing, talked to a neighbor who is a CPA and he suggested an investment advisor?? I don't really need advice on investments only the best withdrawal method. So far we are doing well tax wise but wonder when we want to cash out a large amount the best way to do so. I may be over thinking this but would rather err on the side of caution.

[San Onofre Guy]

The key is to minimize taxes. Presently capital gains have preferred tax treatment thus it would be best to sell securities in. Taxable account prior to taking distribution from tax deferred, especially if you are younger than 59 1/2. Remember that you have the RMD, required minimum distribution from tax deferred accounts at 70, but I think that has been raised a bit.

[frugal-one]

The key is to minimize taxes. Presently capital gains have preferred tax treatment thus it would be best to sell securities in. Taxable account prior to taking distribution from tax deferred, especially if you are younger than 59 1/2. Remember that you have the RMD, required minimum distribution from tax deferred accounts at 70, but I think that has been raised a bit.

RMD is now 72. I understand the reasoning... to minimize taxes that is why I am asking. Don't understand why preferable to sell taxable before deferred... after age 59.5?

Here is something to consider?
https://www.schwab.com/resource-center/insights/content/3-mistakes-to-avoid-when-making-large-portfolio-withdrawal

[San Onofre Guy]

If you pull money from 401k or IRA prior to age 59 you have a 10% penalty besides taxes. That might not be the case with 457 funds.

[Gardnr]

If you pull money from 401k or IRA prior to age 59 you have a 10% penalty besides taxes. That might not be the case with 457 funds.

I cashed a 457 this year. It did carry the 10% penalty. It was small so I wasn't worried about it.

Frugal One: Look at the tax brackets. What I am doing is converting IRA to Roth up near the max of our current tax bracket. Why? We don't know what is going to happen to taxes in the future. I believe it is more likely that they will go up than go down. The Trump tax cuts terminate in 2025 so will automatically pop back up to 2016 levels if all is left alone.

I don't think you need a professional if you can assess your tax brackets and base your decisions on your long-range plan.

[frugal-one]

Gardnr... We have done the same. Each year we convert IRA to Roth with no taxes due because of the tax bracket. Just worried I am missing something. Wish I could just get a book to explain the ins and outs.....

[Rogar]

I use a CPA for my annual tax returns and he usually give me some time to help explain some ways and times to take capital gains and any retirements savings withdrawals to minimize taxes. It's basic, but helpful. I'm not sure exactly what an "investment adviser" is and how it might differ from a financial planner, but I might pay a professional to help out further if the cost was not too excessive, like say a few hundred dollars. I'm not sure if that sort of professional exists, but it might be cost effective.

[Tybee]

I do not know the answer to your question since there is so much unknown about your situation and circumstances, but this book by Wade Pfau looks promising as at least it is talking about various strategies and seems to be on topic for you:

https://www.amazon.com/How-Much-Spend-Retirement-Investment-Based-ebook/dp/B076J4NBBZ

[LDAHL]

I do not know the answer to your question since there is so much unknown about your situation and circumstances, but this book by Wade Pfau looks promising as at least it is talking about various strategies and seems to be on topic for you:

https://www.amazon.com/How-Much-Spend-Retirement-Investment-Based-ebook/dp/B076J4NBBZ

He’s really good. I’ve followed his work for years. I also like what Steve Vernon has written on the topic of turning savings into income.

[frugal-one]

Thank you all for the info. I have a few books on reserve from the library based on your info. I also came across this book that should be helpful also.

A NOLO tax guide....https://www.amazon.com/IRAs-401-Other-Retirement-Plans/dp/1413328741

[Gardnr]

Thank you all for the info. I have a few books on reserve from the library based on your info. I also came across this book that should be helpful also.

A NOLO tax guide....https://www.amazon.com/IRAs-401-Other-Retirement-Plans/dp/1413328741

I think the biggest crapshoot is what will happen to tax brackets in the future. I'm watching 46 carefully but so far, he stands firm on no increase below $400k so I'm a bit more relaxed for his duration and will continue IRA/Roth conversion to the top of our current tax bracket and no more. I want my Roth as big as possible before a different administration. I can't imagine either party making the decision to "retax" already taxed monies....but I learned long ago never to say never.

My next concern will be mandatory 1.5% withdrawals when I reach that age. That will stink as I doubt I will need it....but I will cross that bridge April 1,2034:~) under current law.

If you find this book super helpful I presume you'll let us know to spend the $?

[Alan]

My next concern will be mandatory 1.5% withdrawals when I reach that age.
I assume you're referencing a Roth IRA but I was under the impression there were no mandatory RMD's for a Roth unless it was inherited. And traditional IRA's and 401K RMD's vary according to current age and the government's approved life expectancy list. Where does the 1.5% come from?

[Gardnr]

I assume you're referencing a Roth IRA but I was under the impression there were no mandatory RMD's for a Roth unless it was inherited. And traditional IRA's and 401K RMD's vary according to current age and the government's approved life expectancy list. Where does the 1.5% come from?

As far as I know, Roth doesn't have mandatory withdrawal. I am referring to IRA mandatory. If current law holds, I can wait until April 1 after my 72nd birthday. And yes, it says 1.5% (presume you know it's life expectancy driven). My oldest sister is about to hit that damn rule and the tax consequences aren't pleasant.

[Alan]

And yes, it says 1.5% (presume you know it's life expectancy driven). My oldest sister is about to hit that damn rule and the tax consequences aren't pleasant.
Still not sure where the 1.5% comes from. As far as I can tell, the IRS requires us at age 72 (recent change, it was previously 70.5) to review their divisor list to see what the divisor is for our age each year and use that number to divide our IRA balance at the end of the previous year. Let's say that at age 72 I had an IRA balance of $1,000,000 and the divisor for my age is 25.6 (which I believe is currently accurate). That means my RMD for that year is $39,062 or 3.9%, which would appear to be the minimum percentage allowed.

Since the divisor diminishes slightly each year my age 73 divisor would then be 24.7. If my new IRA balance had no losses or gains other than my previous RMD I would then need to divide the balance of $960,938 by 24.7 for an RMD of $38,904 or 4%, this would then continue according to current IRS schedule until age 115 when the divisor is 1.9 and would require a 52% distribution.

I'd be interested in how you can reduce that initial minimum distribution to a flat 1.5%, perhaps I'm missing something?

[Gardnr]

I'd be interested in how you can reduce that initial minimum distribution to a flat 1.5%, perhaps I'm missing something?

I don't intend my IRA to be near that large at age 72. As I've said before, I'm converting a significant amount each year (starting at age 58) into my Roth and paying the tax now.

[Alan]

I don't intend my IRA to be near that large at age 72. As I've said before, I'm converting a significant amount each year (starting at age 58) into my Roth and paying the tax now.
OK, but be aware that regardless of the amount of your IRA, be it $1,000,000 or $1,000 the initial divisor guarantees a required minimum distribution of 3.9% and this increases incrementally each year.

[Rogar]

OK, but be aware that regardless of the amount of your IRA, be it $1,000,000 or $1,000 the initial divisor guarantees a required minimum distribution of 3.9% and this increases incrementally each year.

Pretty much my understanding, as well.

I've converted some of my IRA to a Roth every year up until starting social security. Thereafter I've been trying to stay out of a higher tax bracket by discontinuing my conversion. I've also been taking some capital gains from a taxable account. As your basic a buy and hold investor I have index funds I've owned for fifteen or twenty years, and one can imagine unrealized capital gains. Depending on any anticipations of Biden's favorite method of capital gains I may accelerate this. Then there will be MRDs at some time, or optional withdrawals sooner, so it gets complicated.

My accountant guessed that the $400k income limit for Biden's tax increases may apply to a married couple, and possibly for me as a single person it could be something like $200K. Not a present concern, but when it comes down to the details I'm unconvinced any new tax structure will not affect me in a negative way.

[Gardnr]

OK, but be aware that regardless of the amount of your IRA, be it $1,000,000 or $1,000 the initial divisor guarantees a required minimum distribution of 3.9% and this increases incrementally each year.

So much could change in the next 13 years. I'm not going to be consumed by it now. It will be what it will be. I'm focused on my current plan.

[Alan]

So much could change in the next 13 years. I'm not going to be consumed by it now. It will be what it will be. I'm focused on my current plan.
True, I'll be facing it before you and suspect I'll be lucky to get the current 3.9% minimum withdrawal, I believe a change is already in the works. I was hoping you had a way to minimize that initial requirement to the 1.5% you kept mentioning and I was just missing it.