The Money Mustache Community
Learning, Sharing, and Teaching => Case Studies => Topic started by: asauer on June 07, 2018, 08:15:22 AM
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Hi all- I'm trying to figure out options for our withdrawal strategies in FIRE to cover our monthly expenses. Our anticipated FIRE date is Jan 2021. We will both be 45 years old. At that time we expect to have our 'stache in the following buckets:
1. 30% in IRAs (rollovers from previous 401(k)
2. 10% in Roth IRA
3. 30% in employer 401(k)
4. 30% in Vanguard brokerage accounts
*note- neither of our employers allow in service withdrawals from 401(k), so backdoor mega roth is out. Also, our current take home is 160k/yr so we don't qualify for Roth at this time.
I'm a little overwhelmed with the information out there on where/ when to draw from which buckets to maximize tax advantages but still have a regular monthly "income". Thanks for your thoughts.
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Yes, I’m interested in this as well. Also people’s strategy for withdrawing/ selling stocks. Are people selling monthly and making withdrawals or quarterly/yearly? Sorry I don’t mean to hijack he post but it seems to be related.
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It gets a little complicated if one has some combination of
- taxable holdings with a wide variety of cost bases
- retirement income that may land in the midst of the social security "tax hump"
- other "unusual" marginal rate changes in the neighborhood of desired income.
There is no tool that rigorously handles all the above.
But, having said that, take a look at Optimal Retirement Planner - Extended Parameter Form (https://www.i-orp.com/BigGraph/extended.html). It make give you useful ideas.
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How much do you anticipate withdrawing in retirement? You could withdraw from the IRS/401k to fill the standard deduction +/- the 10% bracket, then draw from taxable accounts to exhaust the tax free dividends and capital gains (this is up to about $77k income for MFJ). If you need more than that, pull some contributions from the Roth.
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There's a great tool out there for this kind of calculation. Behold, the internet Optimal Retirement Planner (https://www.i-orp.com/BigGraph/index.html)!
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@zolotiyeruki , do you know how I can tweak i-ORP so that I can see how my 457b affects things? I can withdraw from it at separation from service, no penalty before age 59.5.
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Set up your taxable brokerage accounts to automatically transfer quarterly dividends to your checking account. Assuming you'll need more than just dividends from your taxable accounts to live, periodically sell enough shares in your taxable accounts to make up the difference. Each year from now until you turn 70, convert as much of your tIRA funds to Roth as you can, without paying too much taxes. By the time the money in your taxable accounts runs out, if ever, your tax advantaged IRAs will have grown to the point where you can live off of them forever...
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@zolotiyeruki , do you know how I can tweak i-ORP so that I can see how my 457b affects things? I can withdraw from it at separation from service, no penalty before age 59.5.
In that case, I'd include it in the "Regular savings and brokerage accounts" category.
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How much do you anticipate withdrawing in retirement? You could withdraw from the IRS/401k to fill the standard deduction +/- the 10% bracket, then draw from taxable accounts to exhaust the tax free dividends and capital gains (this is up to about $77k income for MFJ). If you need more than that, pull some contributions from the Roth.
This is something I have been looking into as well since the new tax law went into effect. If I understand correctly, the MFJ std is now $24,000, with the 10% bracket from $0 to $19,000. However, it's unclear to me if OP would need to pay the 10% early withdrawal (non-72t) penatly on all money pulled from IRA/401k, or just that over $24k. If so, OP would owe $2.4k in taxes on first $24k (10% penalty), plus 20% on next 19k for a total of $6.2k in taxes owed (14% rate). If OP can fill the remaining MFJ bracket space with dividends, that's pretty freaking awesome. Throw in a child tax credit, and that's very little money owed to the federal government for a pretty awesome early retirement income.
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Ptf