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New Withdrawal Strategy For Scenario Analysis

 

(@levine921)
New Member Customer
Joined: 2 years ago
Posts: 1
Topic starter  

In the Financial Assets/Management tab, the user can specify the sequencing of withdrawals across taxable/TD/Roth accounts. Each of the drop-down listed sequence strategies exhausts a specified account type first until it is exhausted, then you move to the next account type specified until it is exhausted, etc. I’m asking if you would consider having a withdrawal “sequence” that simply took a % share of each account at the same time to fund the withdrawal need. So rather than exhausting one account at a time, you fund from all the account types with a calculated % based on the funding needed for withdrawals divided by the total account balances available. This % would obviously change each year based on the withdrawal need and size of the total account balances. Some pundits view this as a better approach than exhausting a single type of account at a time in sequence. This approach takes advantage of the tax attributes of each of the account types and preserves the "tax diversification" mix of the accounts.


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(@kdarlington)
Active Member Customer
Joined: 6 months ago
Posts: 6
 

Here is an article from Fidelity explaining what @levine921 just said: https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals. Essentially, we can possibly lower our tax liability if we withdraw from all of our accounts instead of exhausting one account and moving onto the next. The articles explain other strategies that of course differ from person to person to which is optimal.


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(@bradman5150)
New Member Customer
Joined: 6 months ago
Posts: 2
 

Same question for me. I would like to set up my scenario to withdraw from my TD accounts (including RMDs) up to the top of the 12%, 15% or other tax brackets (adjustable based on user situation) and then top off spending needs with after-tax or Roth withdrawals. I have set up a fixed Roth withdrawal under Financial Assets >> Management >> Scheduled Withdrawals Table, but was hoping for a more elegant solution.


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(@pizzaman)
Estimable Member Customer
Joined: 2 years ago
Posts: 112
 

I agree with @levine921 and @bradman5150. In addition, those of us on Obama Care need to limit our MAGI in order to maintain tax breaks, so taking money out of Roth's in addition to taxable and regular IRA's will be necessary.


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(@hines202)
Estimable Member Customer
Joined: 2 years ago
Posts: 184
 

This would be a great optimization, so +1 from me on the wish list.

When I'm working with clients, we suss this out by using the scheduled withdrawals table, as @bradman5150 mentioned. It's often necessary to do that anyway, as couples have made some kind of agreement as to how much each of them will contribute from their own IRA accounts each year. We can do some scenario-based analysis to try to dial it in, but optimization would be great.

Essentially, you might want to start for a target/desired tax rate and base your income sources on that, to make that happen. Some folks like to have go-for-it years that put them in a higher bracket, then take-a-break years that keep them in a lower bracket (back down on taxable withdrawals to have a lower rate and thus take advantage of things like Roth conversions, tax gain harvesting, etc). Always keeping things like IRMAA and the ACA subsidies in mind, of course.


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