Retiree portfolio withdrawals and taxes

Making Your Retirement Assets Last 


[Retirement is] a particularly difficult time for tax planning, given the uncertainty surrounding next year's tax rates.

Still, there are things retirees can do now to keep portfolio withdrawals as tax-efficient as possible.

The required minimum distributions that most retirees have to start taking at age 70½ are based partly on the plan's account balance as of the preceding December.

To reduce that total balance—and potentially the required minimum distributions later on—some retirees might want to start taking withdrawals in their 60s.

This is especially true for early retirees who are currently in lower income brackets because of a recent job loss or forced retirement, says Michael Eisenberg, a certified public accountant in Los Angeles.

Still, it's not a simple decision. Each year, retirees need to weigh the consequences of pulling funds from one account versus another.

In a taxable account, net long-term capital gains are taxed at a rate lower than the ordinary income-tax rate for withdrawals from tax-deferred retirement plans.

Be aware that taking money out of a retirement account or selling securities at a sizable taxable gain—rather than pulling cash from a certificate of deposit, money-market fund, savings or checking account—could result in higher taxes on Social Security benefits if it bumps income above a certain threshold.
Comment: A discussion I had with my retired (75 year old) brother-in-law last weekend: Should one draw income from a taxed brokerage account or from an IRA first? His answer: "good question". We discussed the pros and cons of each approach. I think I would like to:
  • Not commence social security until 66 (3 years for me ... 4½ for my wife)
  • Commence the pension upon retirement.
  • Not withdraw from IRAs at all until 70½
  • Sell brokerage assets for as-needed funds to make up for what we may need beyond pension and social security.
Of course ... we have to depend upon our Lord and trust Him for direction!

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