Tax Efficient Withdrawal Strategies to Reduce Taxes in Retirement
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- Опубліковано 1 чер 2024
- Do you have a tax-efficient retirement withdrawal strategy that maximizes your after-tax income in retirement? You can schedule an appointment with one of our Retirement Experts to look at your situation and help you plan for your future. Call us at (920) 544-0576 or go to www.safeguardinvest.com/contact.
You need income in retirement. Where will it come from?
Which of your retirement accounts will you withdraw from in a given year to save on taxes, not only this year but for years to come?
This is one of the most important questions in retirement.
Decisions you make in Year 1 of retirement will affect what happens in Year 15 of retirement.
As you start to think about all of the variables you need to consider in this withdrawal process, it can be overwhelming.
There is a lot of advice pertaining to this topic that a retiree can follow. Unfortunately, a lot of the advice I see is destructive at best. We'll show why in this Wealth Wednesday...
In this presentation, we lay a framework for building a tax-efficient income stream in retirement. We will discuss:
✅ Retirement Tax Strategies you can begin using in your retirement immediately
✅ Why the optimal withdrawal strategy to reduce taxes will vary for everyone. There is no one-size-fits-all
✅ Why tax planning and using the right retirement withdrawal strategies in your retirement plan can be one of the most critical steps you can take to increase your after-tax wealth
✅ How to reduce taxes in retirement in surprising ways with focused retirement income planning
#taxefficientwithdrawalstrategies #retirementincomeplanning #taxplanning
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Always remember, "You Don't Need More Money; You Need a Better Plan"
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Excellent presentation! It’s so unfair that taxes get more complicated in retirement! My head is spinning….and I have a B.S. in Accounting.
It’s raining knowledge….and it’s free. All you have to do is put a bucket outside and let Eric and Tony fill it.
Hahaha, thanks Stuart. You're the man!
My father was responsible for running a profitable sawmill for many years. It was his job to get the most lumber yield from every saw log. That wall paper behind you… You don’t need more timber. You need a better plan
😂😂
We are retiring at 54 (year we turn 55) plan is to utilize 401k and brokerage until 59.5, balancing each to keep taxes in 12% bracket and qualifying for ACA. From 59.5 until will gradually move income from IRA and 401k avoiding using Roth and Brokerage unless needed to keep tax bracket in 12%. From 70 on, will use both SS and spouse SS and Roth/brokerage to keep taxes close to 0.
Like your plan.. I was going to utilize almost a similar plan 401k and pension.
The section at 37:22 on ACA planning for age 62-65 is very interesting. I was wondering if you have any videos that cover ACA planning and tax strategies for early retirement from, say, age 50 to 62 ?
Thanks Eric. This is one of the best videos out there that I have watched. It has cleared out a few clouds over me. Really appreciate it.
Great info, clearly explained. Thank you!
Glad it was helpful. Thanks!
Thanks Eric, this is the best planning that I have seen.The examples of the ACA planning and the catchup zone helped me. I would love to see more examples.
So glad I'm a subscriber. I learn something every time. I made notes for my planning. 🙂
This was very well done and aligns with my research into this topic. Some of my friends thought it was nuts for me to say I was delaying social security until 70. When I explained to them it was about tax planning, medical coverage pre age 65, and an overall decumulation strategy they started to get it.
The caveat is - we don't know when we will "go"
@@ecs1749 You are correct. There are no guarantees in life. I can only plan based on what I know and what I’m comfortable with.
I am not sure I will wait until 70 for SS but watching this video and other ones by Eric has convinced me to delay SS for several years in order to at least convert a large portion of my 401K and IRAs to Roth. I knew I had a tax time bomb with the deferred accounts but I see the reality that converting a large portion now to take the tax hit without SS makes the most sense. Its especially important to convert now knowing that the tax brackets revert back in 2026 so its a definite tax increase at that time.
@@samc9156But aren't Roth conversions limited to $7500 for 2023? I don't consider that a large amount compared to the whole account value.
@@robdupree5687No, the amount you are referring to is the CONTRIBUTION limit to your Roth - not what you can convert into it. There are no limits to how much you can convert into it, but you have to pay taxes on whatever amount you choose to convert.
4 months to A62, this “clear zone planning” is exactly I need to work on. Thank you!
Outstanding presentation! Thanks for the information. I look forward to watching your other videos.
Thanks Mike!
Great video! Thanks Eric!
You bet! Thanks Terry!
Great point on SS. I am delaying until 70 for the reason you mentioned. At least 15% will not be taxed for federal and zero in my state. So in the 25% bracket instead of 31% with state I only pay 21% for a 10% savings, thus I want to maximize that income and COLA.
I really enjoyed this ... ACA and Roth conversions are interesting ... I hope you cover singles more. Note that having a larger taxable account can mean a substantial forced dividends income source.
This is a very comprehensive overview, and a great video - thanks. I’m curious - how many years out from retirement does it makes sense to start planning this? It seems like we’re all guessing at future lax laws right now, but if retirement is farther away, it’s more of a guess. Is it best >7 years out to just focus on balancing the tax allocation buckets as much as possible? New rules will be there when you get there…
You are phenomenal in this one! Usually I can’t keep up with you. Thanks !
Wow! So much good information. You're site is my go to retirement tax planning channel. Keep up the great work and thank you.
Thank you Scott!
Thanks Eric, I ditto the comments directly below. Very very well explained. Excellent!
Great job explaining complex topics.
Thank you!
Thanks for the info on the clean up zone. Useful!
I have watched many of your videos. This is the best.
Very informative thank you!!
Excellent video. Very clear explanations.
Thank you Mr. J!
This was awesome! Everyone who wants to DIY their early retirement needs to watch, study and understand every aspect of this. Sadly, most people are looking for the "one size fits all" answer and won't take the time to comprehend all the moving parts involved.
Thanks Eric!
Yes! All connected and make tangled web tax trap! Cascade into tax Nitemare !
One of the best videos on this topic I have seen. Thanks!
Nice presentation. A couple of times you emphasized "tax savings" but the real criteria to optimize is 'after tax' account value or utility. Working on converting my IRA to Roth prior to SS.
Thank you Ralph! I mean them synonymously. Understand the distinction but know that we care about after tax wealth and distributions ultimately.
So glad to have found your channel! Thanks so much for what you do.❤❤t
Thank you, well done.
Thank you!!!!!!!!
Fantastic! Extremely useful, intelligent and well thought-out. You’re the best source I’ve found on UA-cam.
Wow Eric, drop the mic! Well thought out video on this topic!
Thank you John! I really appreciate it!
Awesome overview, thanks!
Excellent review - thanks!
Wow… Great presentation!
Thanks Kwame!
This is great stuff. Very helpful and educational
Eric, excellent work. Thank you for sharing this like a teacher. The more you do this the better you get at it, and subsequently so too do those fortunate enough to watch and learn. Well done and well worth the time for your team to invest in. There is a tipping point that is reached (no one quite knows when) where all of these videos and presentations will begin to compound in returns. Keep up the work and stay the course.
I really appreciate the kind words Jeffery. We won't be slowing down :)
Thanks for taking the extra time for this comment. Means a lot
Just found your channel. Fantastic presentation. Appreciate your information on retirement tax planing and strategies. subscribed!
Thank-You! Such good information.
Excellent analysis and explanation.
Thank you Thomas!
Excellent!
Always good content. I just retired and looked into Roth conversions but now thinking differently. If I divide my assets into 2 buckets, (which are about equal in total) tax deferred where either I or my heirs will pay tax and tax free or step up in basis where heirs pay no tax, which includes stocks, cash equivalents and life insurance. My tax deferred combined with SS and a pension is enough for me to live on even after paying tax for 30 years. So I will treat it like a salary as if I am still working and pay tax as I go. This will allow the non taxed bucket to grow so it becomes a higher % of the total so my heirs collect more tax free.
Fantastic work Eric
This was a terrific presentation. I now understand the WHY behind my financial planner’s recommendations. He says that things will be preferable tax moves, but now I really get it. Thank you so much. I have a lot more confidence in the plan he provided.
Eric, can you show a forward looking tax plan with forced income (pension) and more detail on incorporating SS? Most pensions range from $70-150k per year for state and fed employees.
@Giselle. Social security benefits are cut via 2/3 of pension.
Most high pension earners plus spouse won’t be able to get SS.
Just Google Pension and social security offset
NIce presentation. However, it would be nice to see more examples and your recommended action plan. Including an explanation as to why they should follow that specific strategy. Nice job!
Fair point. I was trying to avoid making this a 3 hour presentation. I am planning on recording case studies in terms of optimal withdrawal strategies
This was extremely helpful. Thank you!
Excellent. Thank you; just what I needed to learn (take some gains while I'm in lower income during low fed tax time and before taking social security). I think you referred to it as "cleanup time." I only have 2 years to do this before RFA so this may mean I might want to take ss later so I can do some more clean up before ss. Liked and subbed!
The best illustration I ever saw. Thank you🎉
THANK YOU.....
Can one do Roth conversions prior to retiring ? Wonderful how you present this information.
Of course! You can perform a conversion at any time
WOW! This is very eye opening. I wish I had seen this ten years ago (71 years old).
Great! And very thorough and well explained. Might mention in marriage QDRO (with younger spous) and QLACS and one off HSA payment as additional ways to reduce RMDs.
Cheers
Jef
Your well-designed slides massively help.
Would love to see a forward tax strategies with forced income above $70k
Will do in future videos!
Just watched your presentation. I found it very informative. Ya kept mentioning IRA and RMDs. I thought 401k was the only retirement account that had RMDs. I have a roth 401k. Can you do a show about roth 401k withdrawal strategies? I also have a navy pension that I will have to deal with when I retire in 10 years.
Almost all tax-deferred accounts have RMDs. Traditional IRAs, TSPs, SEP IRAs, 401ks, 403bs, etc.
Even a Roth 401k has an RMD. You can roll that to a Roth IRA to avoid RMDs but it can't stay in the Roth 401k.
We will be discussing more withdrawal strategy case studies in the future. Thanks!
This is basically the vidio I have looked for vor years. I have always thought about taxes in this way. Not a tax planner ut accumulated enough knowledge over the years to basically force myself to maximize every year possible into roths from close to when they started. I will be sharing this link with a bunch of people that I hope will watch because you explain it better than I ever could.
Great video! we are in the withdrawal phase ages 74-77 puzzling about which buckets to use each year; any suggestions on software, videos or books would be appreciated.
Good explanation and advice!
This is the BEST withdrawal strategy video! Thank you. I think you saved me a lot of taxes from RMD.
Excellent presentation. I like the framework you provided in this presentation. A lot of good food for thought. I was hoping you guys have a SaaS online to use for a reasonable fee of course. Thank you again!
You covered exactly what I plan to do. 65 in 6 months. Filing single for the first time in a long time. Starting over. Fixed pension, convert as much to Roth as possible from 401 and willing to take the irmaa hit if it makes sense. Delay ss until forced to take it etc. lots of room left for 2023 to stay under the second irmaa tier, still room under first tier.
So so awesome. Thank you so much.
Excellent segment! Knowledge is power! Especially, since I have 2 government pensions, government 401K, and social security. Fortunately, I also have tax free VA service-connected disability compensation.
Good info. Been thinking about this now thay middle age.
Thanks, great video. Seems like with a larger tax deferred account and need large ROTH conversion, you probably can forget about the ACA subsidy, subject to larger IRMAA penalties and better to delay S.S till 70. Would be nice to see a video for large accounts like $5M (maybe $2.8M in tax deferred, $1.9M in taxable (let says $0.9M LT gain), $0.3M Roth and 12 years to RMD. What will be the best tax efficient withdrawal to reduce taxes? I am sure married couple will do better than a single person since they can convert more in the same tax bracket.
Great suggestion Allan. I am planning on doing some case study withdrawal strategy videos in the future. Something similar to this situation will certainly be on the case study list.
Great video, I have the similar concern.
How to decide the IRMAA level a single taxpayer with large tax deferred accounts should convert to? Thanks.
have similar situation 2.8 M taxable, 1.4 Deferred ( IRA/401k ), .3 Roth... Thinking of building Self managed Annuity from Fidelity and move large portion of 2.8M Taxable to Annuity to control the income 2.8 M taxable is generating due to dividends. This video is great. I was planning to use 60-70 10 years to move 1.4 Deferred to Roth at 100K each year ( keeping net under 80K after standard deduction ), while realizing Capital gains in Taxable at zero rate ( however Dividend income really throws it off the track ). Let next generation deal with Annuity related Taxes much later on in case they do not get high income. Its good problem to have to be in position to pay taxes.... :) ... Any other ideas...
Great presentation! Glad to see the ACA benefit being integrated in planning. Most (including myself) don't see this one coming. Ouch!
Great Information!!! thanks. Now I have an idea of what to do to plan my tax strategy for each year.
My plan has always been to convert part of my tax deferred 401k into a Roth IRA, live off money from my pensions and what is left of my t401k, let the Roth grow over the next 10 years on my conversions. I would then draw from Social Security at age 70, and live off my pensions, Roth, and Social Security, and hope that my t401k has minimal distributions at 72.
Thank you for another great video! I wish you would offer paid consultations for those who manage their retirement plans themselves.
Loved the video. Nicely done. Easy to understand.
I am 46 married and we both max out our 401K. Our goal is to retire at 55.
Should we change our contributions to a Roth 401k?
Hey Stephen,
Great question! Although it would be tough for us to answer without knowing more about your situation. The main variables will be your current top marginal rate vs. your future tax rates.
Very useful, thank you. Any advice on possibly delaying pension for 5 years and pulling from tax-deferred account instead? Pension increases 6% each year delayed up to age 65. We are currently 60/59. No COLA on pension. Thanks.
You should ask your financial planner about your situation, specifically about what happens when one of you turns 65. Delaying your pension seems like a sensible idea, but your financial planner should explain to you how to keep your Medicare premiums and taxes from both shooting upwards when you turn 65, and remember that the Democrats want the Trump tax cuts to end in 2025.
SS is protected to only pay 78% of its monthly benefits in the future. How do you see this affecting the concept of delaying SS?
Very informative, I think a series of videos breaking this down a bit.
Some would call me poor. My income is $31K/yr. I spend about $10K/yr. So my wealth increases by about $20K+/yr. I live simply with no debt. I'm a 74 year old veteran. My only pre-tax account has about $100K balance with RMD about $4K/yr. That $4K goes into another account, I don't spent it. I pay no income tax at all and my property tax is $0/yr also. I could spend 3 times as much and still be stable financially in the current economic climate. I'm OK. My total wealth is slightly greater than $500K. If everything crashes, I would still be OK because I have actually been really poor in the past and I know how to do that too.
Wow. Eric. Full of info. Actually understand everything. unfortunately , I have to do massive Roth conversions before 2026. And balance inherited Ira withdraws. It’s massive. Sigh.
Thank you! Agreed that inheritances can really throw a wrench in a tax plan.
@@SafeguardWealthManagement yes. It’s grown substantially, it went from $340k last year to 1 million now. I have 9 years to take out. All Tesla. Ha ha.
What is so unfortunate about a large inheritance?
Awesome presentation
Thank you Joseph!
Good advice in the catch up zone ..by delaying social security and using less recorded income more taxable income I went from $1550 dollars a month cobra health insurance to $0 monthly $0 deductible ACA /Medicaid insurance.Have to be careful how much of Ira tax deferred account are withdrawn.
Excellent detailed presentation. Thanks
Nicely done. I'm not understanding what "life expectancy factor" I would use if withdrawing IRA at age 65? The table I'm using starts at age 70 or I guess in 2022 72. Do I use the first year for each year until I reach my withdrawal year?
Special Thanks for the ACA section! My wife is retiring at 62 and we will lose her coverage. We are looking to tip toe thru this ACA zone by paying the ACA HSA high deductible premuims thru my S-corp business and still do some targeted roth conversions especially if the market tanks as in 2020. Traditional IRA's are $1 mil so we have only 10 years to convert before taking SS at 70.
You r amazingly excellent on your financial planning. I should have known you before I turned 65, now I’m delaying my SS to offset my Medicare IRMMA payment and planning to convert to Roth this year 2023 though very limited. Thanks a lot.
How do you factor cash into your retirement plan. Tax free bucket?
Taxable account bucket.
aca strategy was extremely useful. Great information!
Tax avoidance isn't the goal, having money is the goal.
Does it ever make sense for someone that is retired in their 50's and taking ACA, to forgo subsidies to convert IRA to roth and make up the tax loss on growth of the roth? Or is it always better to wait for the "cleanup zone', when medicare kicks in, to do conversions?
It depends on a person's situation. If someone has huge tax deferred balances and estimate RMDs are going to be large and destructive, it may make sense to prioritize conversions vs. a subsidy. It all depends on the situation.
Hi there! Great video. Just recently learned about roth conversions with your videos we watched. How does the job & tax cut apply when trying to convert our 401k to roth ira while employed? We called Fidelity & asked if we can convert and they said we couldn’t but We weren’t sure if the representative knew what she was talking about. Thank you soo much for all your great videos!!!
Maybe this is a dumb question, but when you say to withdraw from your IRA first and then from your taxable account and then from your Roth does that mean sequentially during the year or is there some way to designate certain income to be considered first, second then third when filing taxes?
Could you provide a link to your "Putting the Right Assets in the Right Accounts" video you mention at 28:05 please?
This was a fantastic explanation, thank you for sharing this information,
Hi Eric: This is very informative and very clean. Is there an Excel template you have where in one can enter the tax bracket one will be in and have suggested pull for a given income from Roth, vs Taxable vs Tax deferred...etc., including social security
Question on tax harvesting: Taxable income has to be below 80,800 to benefit from the 0% long term tax rate. If your income is a little higher, does ALL of the long term capital gains for that year jump into the 15% bracket? (or does some of it still get the 0% benefit?). (Got to do my Roth conversions first, but the harvesting is in my plan. Thank you for all of the great info).
Look at the income stacking chart 19:15. in the order of stacking, any of the LTCG that falls below the 80800 value is 0% taxed, any above is at 15%.
Great question. The capital gains that are pushed above the $80,800 mark will become taxable. So if only $5,000 is pushed above that mark, then only $5,000 would be taxed at 15%.
@@SafeguardWealthManagement Thank you!
132% Social Security is only for those born before 1955. From 1955 until 1959 it's between 126% and 132% depending on which year you were born. How about living off cash first if you have it, and then doing Roth conversions. Deplete the cash and then fill it back up with withdrawals from Traditional accounts in later years but before age 70?
You are correct in regards to SS. Regarding living off the cash... it will depend greatly on the situation. If someone has that much cash while still has large tax deferred balances, I would prefer to invest the cash and prioritize conversions but every situation is different
We only have two years before starting rmd,s and both of us are getting ss so I feel trapped!!! I wish I would have known about this clean up zone before I started social security
I’ve got taxable, pretax, and Roth accounts. Which account should I take my “fun money” from? (fun money can be used any time…)
Most deductables on aca are more than 5000 per person. Bronze plans are 9000 per person max out of pocket. If you get the 5000 deductable plans are hundreds per person on premiums
Thanks Eric, very comprehensive!! Are there any conditions for single filers over 60 to commit Roth Conversions up to 32% (within Catch-Up Zone) and forego some ACA benefits to avoid SS Tax Torpedo and IRMAA penalties in the future?
Excellent
First, it helps to remember a couple of maxims: “Two things you cannot avoid are death and taxes” and “When things appear to be going well, you’ve obviously overlooked something.”
What is the “something”? It’s large dividend income in your taxable portfolio. You have to remember that capital gains and taxes are added together when computing their taxes and how your situation can be affected if an increase in ordinary income will move any dividend income out of the zero-tax range into a higher tax zone of 15 % or 20%.
If you fall into this situation where beforehand you are able to get some of your dividends tax-free due to having a low level of ordinary income before making the IRA conversion, if you do a IRA conversion to a Roth IRA or just take the IRA proceeds as ordinary income, the marginal tax that you will pay on your increase in taxable income can be the sum of your marginal ordinary income rate plus 15%.
Here’s a possible example: say the sum of unavoidable ordinary income of a couple filing jointly minus their personal deduction is $50,000 and the total of all of their capital gains and dividend income is more than the zero capital gains bracket both before and after making the withdrawal from the tax-deferred retirement account. What will happen in this case is that the marginal tax rate on the increase in total income will be the sum of the tax rate in effect at the upper end of their ordinary income plus 15% plus the taxes owed on the increased ordinary income up to the top of the total income for the couple at the top end of the increased total income. In this simple case, the marginal tax rate on the tax-deferred account will be 12% (the tax rate for $50,000 of taxable ordinary income) plus 15% from the loss of the dividends moved from the zero-tax bracket into the 15 % bracket for a new marginal tax rate of 27%, not zero or 15%. Even delaying filing for Social Security to age 70 will not alleviate this situation.
One’s actual situation can be a lot more complicated than this example if state taxes are involved and if one or both member of the couple are receiving Medicare and the large taxable income after making the withdrawal from the retirement account triggers an increase in the couple’s Medicare premium rates.
Remember the two maxims from the first paragraph.
thank you for not talking so fast:)