Strategy for Withdrawing LTCG from the Taxable Account

Jonathan Kandell · 2025-08-01T17:37:09Z

I am somewhat confused about how to properly use the withdrawal strategy setting found under Management, and how to coordinate it with growth taxation and withdrawal priorities. The manual says Strategy for Withdrawing LTCG from the Taxable AccountThis is a control to tell the tool when to harvest LTCG from your taxable account. Based on your cash flow and the setting specified in the Withdrawal Priority Table described above, it may become necessary to make withdrawals from your regular investment account. This control allows you to tell Pralana to take those withdrawals across all taxation categories in accordance with the percentages specified in the Growth Taxation table discussed under Modeling Your Portfolio, to take them exclusively from unrealized capital gains or to avoid taking them from the unrealized capital gains for as long as possible. This affects tax calculations: If “Distribute withdrawals evenly” is selected, withdrawals will be made in proportion to the interest, realized gains, tax exempt and unrealized capital gains categories specified on the Taxation page; if “Withdraw capital gains first” is selected, all withdrawals will be made from the unrealized capital gains category, and the taxes on these withdrawals will be determined accordingly; if “Withdraw capital gains last” is selected, no withdrawals will be taken from the capital gains until all other categories of growth have been depleted. If I understand this correctly, the setting guides whenever Pralana withdraws money from the taxable account, scheduled or unscheduled. If set to "Distribute Withdrawals evenly", then withdrawals are taken across the whole Growth Taxation settings (i.e. with some as interest and ordinary and qualified dividends, and some as ltcg, etc). If set to "Withdrawal capital gains first", then the entire withdrawal is treated like a capital gain. If set to "Withdrawal capital gains last", then the Growth taxation proportions are used and ltcg only utilized when the yearly generated interest and ordinary dividends don't capture enough of the withdrawal. 1. Am I correct to assume that when "gains first" is set, the growth as stipulated under ROR (and taxation of that growth per "taxation growth" inputs) occurs as usual during the withdrawal year? After all, the growth (and taxation) of interest and ordinary dividends and unrequested capital gains occurs on its own in a given year regardless of any withdrawals. Or does the "gains first" setting "wipe out" the tax growth settings for that year? The other issue is that Pralana doesn't know if the withdrawal happens at the beginning or end of the calendar year, and that might effect the amount of the inherent ROR growth. 2. Is the primary reason for setting "gains first" to tax model gain harvesting, and is it best used in conjunction with "Withdrawal Priority" having stocks high on the list? 3. When would you want to set "Distribute Withdrawals Evenly"? The taxable account will generate its ROR regardless of withdrawals, and will be taxed as interest etc in the proportions indicated, but why would those proportions apply to withdrawals? Taxable bond withdrawals will generate mostly ordinary interest, and a withdrawal from stocks will generate mostly capital gains, and a mixed account will withdraw some of each. But that wouldn't match the taxation of the growth as set in the growth taxation proportions, which apply only to inherent generated yearly growth from ROR, not withdrawals. 4. When would you use "withdraw taxable gains last"? I suppose I would do this when i was withdrawing from my bond funds, which are mostly in my tax-deferred accounts. Is the setting designed for when taxable account is mostly bonds?

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Richard Eaton

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August 31, 2025 12:15 pm

@jason-blattyprotonmail-com

If you have room in your tIRA for more bonds, why do you have any bonds in taxable? Just because they are munis shouldn't change the decision, it just changes the cost drag of holding bonds in taxable from extra taxes to reduced yield. The more efficient approach is to preferentially put your bonds in your tIRA (as you said, you would use taxable bonds there).

You would have to sell something that (hopefully) has a gain in order to have cash to live, but the overall portfolio performance generally works out better. In this case, you would a tranche of money that would start with no gains in it, so selling for cash wouldn't generate much in the way of gains.

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