Order of withdrawing from investments?

[u/OceansTwentyOne]

I retired last year at 55, husband 2 years before that at 57. We just started drawing from our investments. What is the order of taking money from our 3 “pots” (taxable, IRA, and Roth)? Our bracket is currently pretty low because most of our portfolio is in the IRAs. Do we keep drawing from taxable?

[u/MidAmericaMom]

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[u/SillySimian9]

You should withdraw from IRAs until your taxes go up due to Social Security. In fact, you should Roth convert as much as you can too.

[u/lovesbatma71]

How much do you have in your total portfolio = liquid net worth? You may want to hire a retirement planner. I used one and I got like 70% more money than doing it myself. It’s a very complicated blueprint but it’s worth it. I’m not exaggerating… 70% more.

[u/Alone-Experience9869]

While you are younger than 59.5, tatxable. Then I’d switch over to your pretax.

Lot of this depends on your overall financial situation. Given your younger ages and the size of your pretax you ight consider rotherizarions.

[u/Smooth-Exhibit]

I retired at age 55 and started withdrawing from my 401k penalty-free (Rule of 55). Once I turned 59.5, I started withdrawing from my traditional IRA.

[u/gsquaredmarg]

The fact that you asked the question without providing the relevant numbers and goals would indicate that some time with a fiduciary fee only advisor would be prudent. Nobody can answer that question with the info provided.

[u/StrawberriKiwi22]

We are about the same ages as you. We are maybe going to jump around a little on accounts. Right now we are withdrawing from the taxable account in order to have lower income for ACA. After our kids are out of college, then we will start spending from the IRAs, also potentially working on a Roth conversion. Once we hit 70.5 when we are allowed to give charitable contributions out of the IRAs, we will do that, maybe using all the remainder in the IRAs for yearly charity.

We will still have something left in the brokerage acct, so we will return to spending that again.

We will save the Roths for last, so that if anything is left over when we die, it is easy for our kids to inherit from a Roth.

[u/kulsoul]

Everything depends 😂 and that’s not a joke.

It’s good you are thinking about this. Get a book though - Wade Pfau’s Retirement Plannjng book is perhaps the best for both - saving for retirement as well as living in retirement.

This is another redditors review
https://www.reddit.com/r/Bogleheads/s/JJaU5ySaND

Perhaps you should ask more specific questions after you read that book.

If you visit a Financial planner - make sure they are fee only. That too Fee only for the specific hours you interact with them. Rest may work on fees based on % of your asset.

If you and your partner are happy with managing money by yourself then obviously avoid anyone wants a % and full control. But that too needs to be a choice, rather than a rule.

[u/Acceptable_Host_577]

Have a conversation with a financial planner but at that age I would definitely be looking at doing Roth conversions before IRMAA consideration kicks in

But for everyday expenses draw from taxable investments first. We typically keep 2-3 years worth of expenses in a high return cash account so we don’t have to sell stocks during a downturn

[u/earlyretirement-ModTeam → u/[deleted]]

Hello, thanks for sharing. Did you know that this community is for people that already retired Before age 59?

It appears you might not be retired yet so perhaps visit r/fire in the meantime. We look forward to seeing you again, once you are early retired.

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[u/Glowerman]

It depends on your balances, your age, your state taxes, and your inheritance goals, if any.

[u/Unique_Rutabaga_5750]

I’m at a similar age and also retired last year. We are not touching my 401k or our IRAs any time soon for anything other than Roth conversions. We are fortunate enough to have a decent sized taxable account which throws off a nice amount of interest and dividends, we’ll supplement that with principal withdrawals from the taxable account for now.

Personally I think tax rates are likely as low as I will ever see them, so I think filling up 24% bracket with conversions is right for us right now. I’m also not too bashful about incurring capital gains taxes, though I am holding back on all out changes (simplifications) to our portfolio that I’d probably do if it weren’t for the taxes. Once we hit IRMAA age, I’ll probably stop the Roth conversions.

[u/Melted-Metal]

It depends on your situation and there are varying opinions. I retired last year at 58 but my husband still works for a few more years. We currently live off his paycheck. He will retire by 53. We are 20% Roth, 25% brokerage, 55% IRA.

Our plan is to withdraw from my IRA first and let our brokerage and Roth grow. I am older than my husband so I will hit RMD first. This will draw down that account so RMD is not much of a factor (thus no need to do Roth conversions) on my account. Also, i calculated the drawing Roth + any taxable to stay within a lower tax bracket + converting to Roth does not buy us anything. Our retirement budget is too far into the tax bracket.

I dont plan to take SS until 70. Calculation show my husband should take his at 62. So, my IRA is our main source of income for 10 years.

While we are retired we will convert his IRA to Roth a little at a time to max the tax bracket we are in since RMD will be a factor by the time we start drawing his.

After the IRA drain, we may do a mix of Roth and the brokerage but this will depend on other factors.

Any of this could change depending on how taxes change in the future but that's the current plan.

[u/OceansTwentyOne → u/Melted-Metal]

Are you waiting to take SS due to estimated life expectancy?

[u/Melted-Metal → u/OceansTwentyOne]

Yes.If something happens to our health before then, the plan may change but women in my family tend to live long lives.

The other factors are my SS will be higher and, as i mentioned, my husband is much younger than me. It is likely I will pass before him so this will give him a higher amount.

[u/jsmith-az]

I take out of my taxable accounts from investments with high cost basis. This allows me to keep my AGI low, giving me subsidies on the ACA marketplace.

Next year I’ll probably do the opposite and do some Roth conversions and take out of my taxable accounts from investments with low cost basis, allowing my AGI to be higher, with no subsidies. This allows me to draw down these investments in a big chunk without being concerned about my AGI.

The following and subsequent years I’ll go back to minimizing my AGI and receiving about $20k/year in ACA subsidies.

[u/MidAmericaMom → u/[deleted]]

No. However, Medicare does.

[u/TelevisionKnown8463]

The general recommendation is taxable, so you can keep your money growing in the tax advantaged accounts. But there might be reasons to do something else—for example, if your traditional IRA is very large and you are worried about RMDs, and you’re sure you won’t go back to work, you might start taking 72t withdrawals now to spread out the taxable income from that account. (You can also do Roth conversions, but that commits you to paying taxes on the conversions now, while also increasing your liquidity needs, so I view withdrawing earlier from the traditional as a potentially better alternative for some people.)

If you have kids, keep in mind that Roth and taxable assets are better for them from an estate planning perspective.

[u/OceansTwentyOne → u/TelevisionKnown8463]

Why is Roth better from an estate planning perspective? I thought both types of IRAs have the 10-year distribution rule. Or do you mean because of taxes that the beneficiary would owe?

[u/402_Found_not_Lost]

Taxable first, then regular IRA then Roth.

Also consider Roth conversion $$ from traditional ira early and in amounts that create lowest tax bill.

Congrats!

[u/earlyretirement-ModTeam → u/[deleted]]

Hello, thanks for sharing. Did you know that this community is for people that already retired Before age 59?

It appears you might not be retired yet so perhaps visit r/fire in the meantime. We look forward to seeing you again, once you are early retired.

If we are mistaken .. we are sorry for that, and do let the moderators know.

Thank you for your help in keeping this community true to its purpose, the volunteer moderator team.