Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Directions
Newsletter Sign-up
Site Search
Site Map
Home
Tell A Friend About This Website
 
 
 
Informational Booklets   
Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

5 Withdrawal Strategies For Retirement Savings

For most people, it’s not enough to scrimp and save for the golden years.  Once you’ve entered retirement, you have to figure out how to crack open your savings nest egg.  The manner and order in which you withdraw funds from various accounts can make a big difference in your retirement lifestyle.

Let’s assume you’ve covered all the bases.  During your work career, you participated in a 401(k) plan or another employer-based plan, enabling you to accumulate funds on a tax-deferred basis. In addition, you established one or more IRAs, and perhaps even a Roth IRA and annuities, to provide more retirement savings. And you’ve invested in stocks, mutual funds and bonds in brokerage and other taxable accounts.  Having done all of that, you have several options for where to get the income you need in retirement.

The conventional wisdom is pretty simple.  Start by withdrawing funds from your taxable accounts, and then later tap your tax-sheltered savings.  The reason is that this will let you continue to benefit from tax deferral for a longer period and thereby preserve more of your nest egg.

But that oversimplified approach fails to take into account all of the relevant factors—including rates of return, projected inflation, your tax brackets both prior to retirement and when you’re retired as well as your personal objectives.  These five strategies could help you fine-tune your game plan:

1.  Fill up the two lowest tax brackets.  Under the current federal income tax rate structure, the two lowest brackets for ordinary income have tax rates of 10% and 15%, while the top rate is now 39.6%.  A common goal is to generate income in retirement that will be taxed at the 10% or 15% rate, but no higher.  (The next tax bracket is 25%.) Thus, you might figure on taking short-term gains on stocks or mutual funds in taxable accounts that would be taxed as ordinary income or generating other taxable income only up to the top threshold for the 15% rate.  For 2014, the upper limit is $36,900 for single filers and $73,800 for joint filers.

2.  Consider a Roth IRA conversion.  When you make withdrawals from a traditional IRA in retirement, the distributions are taxed on a pro-rata basis.  Only the portion representing deductible contributions and earnings is taxed at ordinary income rates. But for qualifying distributions from a Roth in existence at least five years and made after age 59½, the payouts are 100% tax-free.  Accordingly, you might convert traditional IRA funds to a Roth, keeping in mind that the amounts you convert will be treated as taxable distributions.  Building on the prior strategy, stagger conversions over a few years to maximize your use of the two lowest tax brackets.

3.  Spend from taxable accounts first.  Suppose you’ve taken all of the income you can that’s taxed at 10% or 15% but you still need more funds.  What’s next?  All things being equal, taking money from your taxable brokerage accounts may be preferable to raiding a 401(k) plan or IRA.  You may generate mostly long-term capital gains, and they’re taxed at lower rates than ordinary income.

4.  Keep your bond holdings in IRAs.  Although income from bonds is taxed at ordinary income rates, stock sales may qualify for preferential capital gain treatment.  Currently, the maximum tax rate on gains from stock owned more than one year is 15%, and 20% for investors in the top 39.6% tax bracket.  But you lose the benefit of these favorable tax rates for stocks held inside an IRA, because when you withdraw from an IRA much of the distribution may be taxed as ordinary income.  As a result, it’s generally better to keep bonds inside an IRA, to defer taxes on interest payments, and stocks on the outside.

5.  Don’t forget about life insurance.  So far, at least, Congress hasn’t reduced the tax benefits of life insurance.  The death proceeds are free of federal income tax and you can easily arrange to avoid dire estate tax consequences.  Thus, you can consider life insurance to be a supplement to 401(k) and IRA funds on the “back end” of retirement, particularly as a source of income for a surviving spouse.

Note that other factors may come into play that could affect how, when, and where you go for retirement income.  For instance, upper-income individuals also may have to account for a 3.8% Medicare surtax on “net investment income” received during retirement.  The best idea is to develop a comprehensive plan for building your retirement paycheck that considers the potential tax consequences of various approaches.



INDEX
  • Five Retirement Questions To Answer
  • Live Longer And Prosper In Your Golden Years
  • 6 Ways To Close The Retirement Gap
  • IRS Closes Valuation Loopholes
  • Passing Down IRA Assets? Clue In Family Members
  • This Type Of Trust Is A Failure
  • Grandparents Can Become Big Spenders For Their Offspring
  • Time Your Social Security Benefits For Top Results
  • Watch Out For These 7 Retirement Ups And Downs
  • Why Would Anyone Take Their RMDs Sooner?
  • 10 Frequent Retirement Mistakes You Should Avoid
  • Tax Rewards For Year-End Generosity
  • Meeting With The Family For Elder Care Planning
  • 20 Questions On Required Minimum Distributions
  • Tie The Knot For Retirement With A Spousal IRA
  • Four Retirement Planning Rules Of Thumb To Bend
  • When Will New College Grads Be Able To Retire?
  • Last Chance To File-And-Suspend Retiree Benefits
  • You Know You're Getting Old When You Get RMD Notice
  • 10 Steps To Take On The Path To Early Retirement
  • How To REALLY Get Ready For Your Retirement Years
  • Can You Skip Over The Special Tax For Generation-Skipping?
  • What Do You Think Your Life Will Be Like In Retirement?
  • Raiding A Roth Early? No Woes
  • Live Long And Prosper: Roll Out A Stretch IRA
  • Did The Devil Make You Do It? 8 Retirement Miscues
  • Ponder These 4 Reasons For Roth IRA Conversions
  • 10 Ways To Skirt A Penalty Tax On Plan Payouts
  • Why Give Securities To Charity Instead Of Cash?
  • Will You Have To Lower Your Sights In Retirement?
  • What Will $2 Million Get You In Your Retirement?
  • Figuring Out How Much You Need In Retirement
  • Should You Borrow Against A Life Insurance Policy?
  • How Will Your Retirement Distributions Be Taxed?
  • Five Ways To Plan Smarter And For The Long Haul
  • 5 Withdrawal Strategies For Retirement Savings
  • Five Ways To Plan Smarter And For The Long Haul
  • Generation X Members Have Retirement Work Cut Out For Them
  • Booted From A 401(k)? Don't Despair
  • It's Tough To Decide If You Should Retire Early
  • Saving For Retirement At All Ages
  • Which Type Of IRA Do You Prefer?
  • Owning REIT Shares Can Help Minimize Risk
  • Roundup Of New Estate Tax Changes
  • Here Are A Dozen Part-Time Jobs For Older Americans
  • Two More Important Choices For Retirement Living
  • Will Your Retirement Assets Last?
  • The Benefits Of Working With An Advisor
  • Setting Up A Roth IRA Through The ''Back Door''
  • Eight Of The Best Tax Strategies To Use In 2012
  • 10 ''Baby Steps'' To Take If You Are Newly Widowed
  • A Case Study: Retirement Planning In Your Fifties
  • Factors In Researching An Assisted Living Facility
  • New Wrinkle In Pre-59 1/2 IRA Withdrawals
  • A Case Study: Giving Wealth Away
  • Social Security's Online Benefits Estimating Tool
  • Estate Tax Exemptions Survive Longer
  • Will New Estate Tax Rules Lull You Into Inaction?
  • The Fine Art Of Planning For Collectibles
  • Five Tips To Manage Your 401(k) Wisely
  • A Comprehensive Way To Save For Your Retirement
  • Key Factors In Conducting Your 401(k) Vendor Search
  • Assessing The Damage To Pre-Retiree Financial Plans
  • Where Have Vacation-Home Prices Dropped The Most?
  • Giving Up Control Of Your Finances
  • Estate Tax Purgatory: How To Extricate Yourself
  • Cheap Thrills: 10 Ways To Enjoy Life In A Recession
  • Adjusting To The New Reality About Your Retirement
  • What Should You Spend First During Retirement?
  • Retirement Planning Does Not Stop When You Retire
  • Part-Time Job Hunting Tips for Retirees
  • Weighing The Benefits Of Investing In A Roth 401(k)
  • Keep A Leash On Part Of Your Estate
  • Pre-Retirees, Retirees Switch To Roth IRA
  • The Obama Bank Plan And The Risks It Poses
  • New Law Suspends RMDs For Just One Year
  • The Importance Of Year-Round Tax Planning
  • Charitable Giving Rules Changed By Pension Act
  • Market Gyrations Raise Questions For Pre-Retirees
  • Passing More Than Money To Your Heirs
  • How Many Years Should You Retain Your Tax Records?
  • Key Questions For Those Nearing Retirement
  • Retirement Planning Does Not Stop When You Retire
  • Dealing With Market Risk Right After Retirement
  • Nine Estate Planning Mistakes To Avoid
  • Family Foundation Lets You Do Good For Others And Yourself
  • Treating Your Retirement As A Liability
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Understanding the Importance of a Fiduciary Standard
  • Don't Forget About Roth 401(k)
  • Free Credit Reports Available Online
  • Energy Systems Scale and Timeline
  • The Oil Patch Profit Squeeze
  • Timber As A Liquid Investment
  • Timber Facts
  • Ethanol: Salvation or Panacea?
  • Timber Facts
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • A Primer On Managed Futures
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio?
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • A Critical View Of The Consumer Price Index
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • The Case For Industrial Metals
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • Know The Score
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Indentity Theft: Help Is On Its Way
  • Identity Theft: Everyday Prevention
  • Indentity Theft: Tips to Protect Yourself
  • Identity Theft : Tips to Protect Yourself
  • Identity Theft: A Note About Social Security Numbers
  • Identity Theft: Which Documents Should You Shred or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • REITs: A Great Diversification Investment
  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Is Your 401(k) Plan A Failure?
  • Understanding Deflation
  • Tax Issues To Consider When Buying A Long-Term-Care Policy
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Yesterday's Great Companies
  • A Retirement Plan Primer After The 2001 Tax Act
  • Beware Of Common Home Repair Scams
  • Estate Taxes To Be Reduced Then Repealed In 2010
  • Faulty IRA Conversions Can Lead To Tax Penalties
  • Many Individuals Pay Private Mortgage Insurance Beyond When It Is Necessary
  • Rethinking Estate Planning
  • Early Retirement Incentives For Tenured Faculty Waives Fica Tax Payment
  • Retirement Plan Contribution Limit Changes
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Five Tips For Preventing Thefts From Your Checking Account
  • Home Office Deductions: Hoops To Jump Through
  • Income Tax Effect On Single And Married Taxpayers
  • Income Tax Planning For Investments
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Under New Law Taking Social Security at 65 Makes Sense for Most
  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning



  • ©2017 Legend Financial Advisors, Inc.®. All rights reserved.