Which accounts should you access first for income in retirement? A good retirement income plan can make or break your retirement. Retirement distribution planning is more complex than saving for retirement.
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As you approach retirement, it becomes essential to figure out how you will sustain your lifestyle without a regular paycheck. One of the most important questions that arise then is which accounts you should withdraw funds from first in retirement. It is a crucial decision because your withdrawals determine your taxable income, and impacts your social security taxability and eligibility for other government benefits. Here are some guidelines to help you allocate your funds effectively.
First of all, you should assess the tax implications of each account you have. Withdrawals from traditional IRAs, 401(k)s, and pensions are taxed as ordinary income in the year they are withdrawn. On the other hand, Roth IRAs and Roth 401(k)s provide tax-free withdrawals after retirement, provided that you have had the account for at least five years. Therefore, it is generally advisable to withdraw funds from taxable accounts first to reduce your overall tax burden.
Another factor to consider is your social security taxability. Social security income may be taxable depending on your income, and how much you withdraw from various accounts can influence that calculation. If a large portion of your income comes from taxable retirement accounts, your social security income may be taxed at a higher rate. Therefore, withdrawing from tax-free accounts can help in reducing your social security tax.
Lastly, you should evaluate the growth potential of each account you have. Typically, tax-free accounts like Roth IRA and Roth 401(k) are invested in equities, which have higher growth potential than bonds. As you will not be withdrawing from these accounts until later stages of retirement, they have more time to appreciate and provide greater returns. However, if you need funds immediately, withdrawing from taxable investments like bonds may be more appropriate, since they have no withdrawal restrictions.
To sum up, the key to choosing which accounts to withdraw from first is to balance your immediate financial needs with your long-term financial goals. Before making any withdrawal decisions, thoroughly assess the tax implications of each account and consider your age, social security taxability, and investment goals for each account. This way, you can rest assured that you are getting the most out of your retirement savings while minimizing the impact of taxes.
Retired sept 2021 biggest fear ,the biden administration
My spouse and I are adding a variety of stocks/ETF to my present holdings for the long term, We've set aside $250k to start following inflation-indexed bonds and stocks of companies with solid cash flows, I believe it is a good time to capitalize on the market for long-term gains, but it wouldn't hurt to know means of actualizing short term profit
So "Which accounts should you withdraw funds from first in retirement?"
Well, watching this video was taxing…and 10 minutes too long with the info presented. ROI was very low … Book promo vid.
Just retire overseas and don’t worry about American broken healthcare system or running out money at old age.
Thank you for posting this helpful and informative video
The presenter didn't answer the question asked in the title of the video. He just explained why it was important, and what things to consider. And he did it in the most long-winded possible presentation. Every section of the video was essentially, "it depends". At the end of the video, the conclusion was, buy my book, or hire someone like me to figure out the answer for you. Not sure which I dislike more, the government that created our horrible retirement system, or the accounting and legal vultures which drain your hard earned savings by being paid to "manage" it or provide ongoing advice on how to game the system.
I think using a marginal tax rate is more realistic, 25% on 38k isn’t realistic and hasn’t been for decades. This is a great demonstration thou!
I just plan on living off my pension, rental income, and social security. My 401k and IRA are reserved until RMD time, and the remaining balance for the kids upon my death.
At 10:00. I know you're simplifying for your comparison, but tax rates for tax advantaged and tax postponed really aren't the same. Tax postponed contributions reduce tax at the marginal rate but distributions are taxed at the average rate (all else being equal). For example, if you contribute to a 401k while making $150k/yr, you reduce taxes by 24% of the amount saved. But later if you withdraw $150k/yr, assuming your 401k distribution is your only income, it will be taxed at all tax rates starting at 0% (for the standard deduction) and only a fraction will be taxed at 24%. Even if you have SS (or some other source of fixed income), your 401k distribution will be taxed at the average rate starting with where SS leaves off–which I guarantee won't be in the 24% tax bracket!
What happens if your tax rate goes down during distribution because your income is less in retirement.?
Heres all i know. Save Save Save starting as soon as possible, dont touch your 401K or IRAs for any reason, work as long as you physically can, as long as you can tolerate the bullshit of working, then enjoy what you amassed. I started saving 15% of my pay at age 24. I am 60 now and will work probably as long as I can color my hair and tolerate 35 year old executives. Hoping to make 70 but if not, I can just say the hell with it, and take some time to refocus. In all seriousness what I tell my kids and young coworkers, is save 15% and live a good life on the 85% and make sound investments and don't change that strategy. Don't borrow your 401K or IRA to buy a boat you cant afford.
Hi David, I just bought your book. Missing from your talk is the tax affect to social security distributions, give the three scenarios. I assume, the tax advantages distribution would be significantly better. Do you cover this in your book? Thanks, Steve
Awful video. Blah blah blah and never answers the question posed. Blah blah blah. Buy my book. Buy my book
For most people, their taxable income will be much lower once they retire. Which means they will be in a lower tax bracket. You didn’t mention that.
At the 11:40 mark you stated that depending on age you may want to get some money converted before required distributions kick in to avoid higher tax. I just retired in Aug 2022. I closed my company 401k and Roth by transferring into managed IRA & Roth investment accounts through Northwestern Mutual. I also have a fixed annuity through another company. So is it too late to convert? Also I didn't really understand what would be converted and to where?
He looks like Forrest Gump.
I get 10% annually every year, year in and year out. ……"Joe F. Biden".
I totally agree with the person who said that you did not clearly answer the question posed in the video. Thank goodness I have my financial totally together but was curious if you would answer the question. I think that in your previous videos you have done a good job of clarifying details but not in this video.
I just found your channel. I really appreciate your calm and systematic method of teaching us. Thank you so much. I have subscribed.
Excellent video!
Have you heard about the Universal Index Fund that your premium earns cash value with coverage from long term, chronic condition and death benefits and once you take out cash it is tax free? What can you say about this option? @lanemartinsen
Nobody can become financially successful over night. They put in background work but we tend to see the finished part. Fear is a dangerous component, hindering us from taking bold steps we need in other to reach our goals.
What if you decide to live off stock dividends only then taking Social Security at 70?
Keep all cash under your mattress and spend as needed in retirement. No taxes to worry about lol. Just kidding.
Only two things are certain: Death and taxes. Just withdraw as little money as you need and pay the taxes man. Lol
I’m young advisor at a firm. You put great content. I also read your book it’s great.
Why an increase in taxes of 10-20% is affecting the second bucket, but not the first?
What pile is stock? I was planning on selling my stock over the next 4 years to use with my pension until I start SS at 67 for the full benefit. I also have a regular and Roth 401k, but was thinking I'd pay less taxes selling the stock.
So what's the answer for the question? You didn't really answer it. I'm surprised about that.
If you develop a dividend strategy you do not have to pull funds from anywhere, you just let the dividends pour in.
The best place to draw funds from is someone else's account.
Wasted 13:41 minutes.
You never answered the question posed in your title. Was this video click bait for plugging your book? I'm disappointed.
Thank you…I’ve been thinking about this lately.
I find it very interesting that we always presume the taxes will be higher in the future. And while I think all of us would agree and it is very logical for future tax planning purposes, if we are to go back in time to those that were using this philosophy years ago, then they were screwed by the tax cuts and jobs act which lowered taxes for a number of years for everyone. Anyone who aggressively pursued this philosophy back then ended up spending more in taxes.