tax strategy for withdrawing money in retirement | Ed Slott and Company, LLC

tax strategy for withdrawing money in retirement

I have a traditional ira, a roth ira and a single premium non qualified deferred fixed annuity. I have a pension and social security. I currently withdraw from my taxable accounts. what order should I use when it becomes necessary to tap my tax deferred accounts to minimize taxes ? thank you

It depends on many variables including your estate plans. Even if you are only concerned with your own tax efficiency, there is no one size fits all answer. Often people are advised to draw down their taxable accounts first, their TIRA or annuity second and their Roth last since the Roth grows tax free. But the order also depends on the relative balances between the accounts. With a TIRA, you will have no choice regarding RMDs. and they get fairly large when you get into your 80s. A good plan is to try to stay out of higher brackets each year. Your pension and SS income will not vary much, but in some years you may have high itemized deductions meaning you could take out more from the TIRA or annuity. Check with the insurance company to see when they require you to start taking distributions. It can vary by state. If you are at the top of a bracket in a given year, you might consider tapping your Roth to stay out of the next bracket if you need to take more money from one of the accounts. If your pension is of any size, you probably are having to include 50% or 85% of your SS benefits in your AGI. If you are not having to include 85% of SS now, you definitely will be when RMDs begin unless your TIRA is small. With the complex SS taxation situation, if you are under the 85% includible, you can micromanage distributions in a way that alternates higher distributions and lower distributions every other year. This can sometime save on SS taxation since when those SS dollars are still being added to your AGI, your effective marginal tax rates is higher than it is right after all 85% of it has been included. If you plan to move to a much higher or much lower income tax state, you can also plan to depress distributions or accelerate them such that more of the income is taxable in the lower tax state.

thank you for your input. pablolo

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