Author Topic: Evaluating the different stash buckets  (Read 2206 times)

growingstaches

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Evaluating the different stash buckets
« on: September 08, 2014, 08:47:32 PM »
I'm 36 years old, with average yearly spending of $40,000 (including mortgage).   I feel I'm getting close to FI, but I'm struggling with calculating the 4% rule as it relates to the different types of investment accounts.  Specifically

  • 401k
  • Roth IRA
  • Taxable

What is the SWR if you have 600k all in a taxable account?
What is the SWR if you have 600k all in a 401k?

or...

What is the SWR if you have 100k in taxable, 300k in 401k, 200k in Roth IRA's?



Beric01

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Re: Evaluating the different stash buckets
« Reply #1 on: September 08, 2014, 08:53:41 PM »
I'm 36 years old, with average yearly spending of $40,000 (including mortgage).   I feel I'm getting close to FI, but I'm struggling with calculating the 4% rule as it relates to the different types of investment accounts.  Specifically

  • 401k
  • Roth IRA
  • Taxable

What is the SWR if you have 600k all in a taxable account?
What is the SWR if you have 600k all in a 401k?

or...

What is the SWR if you have 100k in taxable, 300k in 401k, 200k in Roth IRA's?

You need to figure out your tax rate once you stop working, which is based on your spending from that point on. Then you can reduce your 401(k) by that tax rate percentage, and count that number towards your 4% withdrawal. You'll need to get into marginal tax rates, whether you are pulling from multiple sources at once, whether you have capital gains and dividend income, etc.

For example, I've figured out that my tax rate will be 0% in retirement so a taxable account vs a 401(k) doesn't matter for me.

briandougherty

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Re: Evaluating the different stash buckets
« Reply #2 on: September 08, 2014, 08:54:19 PM »
It's a safe withdrawal rate so what you pay in taxes after you withdraw money isn't something you need to calculate. If you can take out $40k as your 4% then you will get $40k from your Roth but will only get $40k minus taxes for your non-Roth

What I'm not sure about is if 4% is safe when you don't pay taxes on dividends (Roth, 401k, etc.) or also works on taxable accounts where you do pay taxes on your dividends.

arebelspy

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Re: Evaluating the different stash buckets
« Reply #3 on: September 09, 2014, 11:31:32 AM »
It's a safe withdrawal rate so what you pay in taxes after you withdraw money isn't something you need to calculate.

You do need to calculate what you pay in taxes, as you should have your spending figured out, but you'll need to actually withdraw your spending+taxes.

So that after you withdraw that amount, you can pay taxes and your expenses.

So your spending + taxes should be <= 4% of your total portfolio.
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Eric

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Re: Evaluating the different stash buckets
« Reply #4 on: September 09, 2014, 11:39:08 AM »
It's an interesting question.  I'd personally calculate my withdrawal based on paying income taxes at that $40k rate.  A "worst case tax scenario" if you will.  Then if I'm withdrawing from my Roth or taxable, making my tax bill lower than regular income, I'd have the option to use that little bit extra as part of my safety margin or convert more funds from my IRA to my Roth to have a lower tax bill in the future.