Author Topic: RE withdrawals with a working spouse  (Read 1187 times)

Unkempt Stash

  • 5 O'Clock Shadow
  • *
  • Posts: 46
RE withdrawals with a working spouse
« on: February 01, 2015, 06:56:50 AM »

After lots of reading, I have the "standard" withdrawal strategy down:

1. Getting ready:
Max 401k, traditional IRA
Fund 5 years of living expenses between after tax accounts and ROTH IRA

2. Retired and accessing it:
Transfer a years worth of expenses from traditional IRA (assumed that 401k was rolled into it) into a ROTH IRA. This amount should be enough to live on while the inflation adjusted amount in the Traditional never really goes down (living on interest basically). Do this forever

3. Living:
For the first 5 years, live on the after tax contributions and gains from a taxable account. After that, live on the amount you transferred 5 years ago into the ROTH.

4. Taxes:
Taxes are paid on the amount you roll over from the ROTH. If you can live on a relatively small amount, you access this money tax free or damn near it.

I realize that another strategy would be to use capital gains in a taxable account to supplement since you can avoid taxes by remaining in a low tax bracket.

This whole strategy allows one to retire earlier by paying little or no taxes on your retirement income.

But here is the rub, what happens when you have a working spouse?

My fiance is on board with the idea of me retiring as early as I want. But she enjoys her job and doesn't intend on joining me.

Given her decent salary (which can be very low for the purposes of messing with the above calculations), all money I withdraw for living in retirement is now taxed at our highest joint rate! I now cannot get tax free capital gains, and rolling over the ROTH would lose a large portion of any rollover (15% or more).

I have been reading and fiddling with numbers but I cannot figure out a good strategy here. Our finances are separate: she would not see funding me staying at home while "our" nest egg in my name grows as a good solution. To retire in domestic bliss, I need to be able to provide my share of the mortgage/rent/bills/etc

My current best idea is dividends and gains in an after tax account for a lower tax rate...

Any ideas on how to break open this puzzle?

gluskap

  • Stubble
  • **
  • Posts: 169
  • Age: 39
  • Location: Los Angeles, CA
    • Money Savvy Mommy
Re: RE withdrawals with a working spouse
« Reply #1 on: February 01, 2015, 11:58:09 AM »
I might be in this situation too as my hubby wants to work more than I do. But I think I might have to convince him that I want to stop working and be a SAHM so that we can just live on his income while our nest egg grows and he's ready to retire. I'm hoping that when he sees how much I am enjoying not working that he will be ready to join me too.

Maybe work out another deal with your wife where you can do something for her in exchange for having her income contribute more towards joint expenses? No matter what you are still a unit and should do what works better for both of you as a unit. So if she was planning to contribute say $10,000 into her 401k just tell her to keep that money instead and use it towards your joint expenses and you will give her that 10,000 back from the earnings from your 401k that is just sitting there growing. This strategy requires that from this point on you only put money into taxable accounts and then just pay taxes on the long term capital gains rate of 15%. This means you would have to have enough in your taxable accounts to last until you were 55 and could start drawing from your 401k if you kept it at your employer. Or you could also figure out equal payment distributions if you wanted to rollover into an IRA and access the money earlier. Basically though you would want to avoid converting to Roth for as long as possible until she is not working or you are in a lower tax bracket. So the Roth pipeline is not a good strategy anymore and you need to Use other strategies to access your retirement funds earlier.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 35
  • Location: Missouri
Re: RE withdrawals with a working spouse
« Reply #2 on: February 01, 2015, 12:33:25 PM »
Instead of doing your taxes MFJ, can you file separately? I'm about to get married, and I've been doing the math and it's going to absolutely wreck my IBR student loan plan if we file jointly.

I'm not sure if that would help with early retirement and roth rollovers, just throwing it out there.