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I Have A Roll over IRA (no roth) & am curious about which accounts to withdraw first

#1
I am retiring soon (I have said this before but have not pulled the trigger yet). I have a brokerage, roll over IRA accounts (no roth account) and am curious about which accounts to withdraw down first. I have my thoughts and that is to take money out of the brokerage and live on that (along with social security and perhaps part time work plus dividends from both accounts ) and let the 401k principal grow as long as possible. Obviously taxes are a concern and whether or not to convert some of the rollover IRA monies into a roth. I am interested in the groups opinions please
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#2
I have brokerage, Roll Over IRA and Roth IRA accounts. I am 65 and retired two years ago. So, I do not have to much earned income. I live on rent income, pension, and cash in the bank. I am converting 30K to 50K from Roll Over IRA into Roth IRA. I will do this until I start to get my social security and then I will still do conversion but with smaller amount so that I do not pay to much taxes.
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#3
With the information presented:
I would let the IRA monies grow and spend the brokerage.
If you anticipate more taxes (higher tax bracket) in the future; then a gradual ROTH conversion (maintaining your target tax bracket) may be appropriate.
The brokerage funds are great equalizers for maintaining your tax bracket, now and in the future.  Since most taxes have been paid on these funds, it is more like consuming ROTH monies.  The only tax associated, naturally, will be gains and dividends -and hopefully, they are mostly long-term gains.  I find it most beneficial to have brokerage funds supporting my budget needs; and I do ROTH conversions to the extent of my lower tax bracket limits (my target).
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#4
(11-20-2018, 09:25 AM)Travis Wrote: With the information presented:
I would let the IRA monies grow and spend the brokerage.
If you anticipate more taxes (higher tax bracket) in the future; then a gradual ROTH conversion (maintaining your target tax bracket) may be appropriate.
The brokerage funds are great equalizers for maintaining your tax bracket, now and in the future.  Since most taxes have been paid on these funds, it is more like consuming ROTH monies.  The only tax associated, naturally, will be gains and dividends -and hopefully, they are mostly long-term gains.  I find it most beneficial to have brokerage funds supporting my budget needs; and I do ROTH conversions to the extent of my lower tax bracket limits (my target).

thank you, just wondering how to do the roth conversions. Do I take the MRD from the IRA rollover and convert this to a Roth. I will be taking dividend from both the rollover IRA and brokerage so I assume those count toward the MRD but I am not at the age where I need to take the MRD (I am 62). Thanks again. All of the tax deferred money is in a rollover from previous employers 401k accounts
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#5
(11-27-2018, 04:35 PM)Vilgan Wrote:
(11-20-2018, 09:25 AM)Travis Wrote: With the information presented:
I would let the IRA monies grow and spend the brokerage.
If you anticipate more taxes (higher tax bracket) in the future; then a gradual ROTH conversion (maintaining your target tax bracket) may be appropriate.
The brokerage funds are great equalizers for maintaining your tax bracket, now and in the future.  Since most taxes have been paid on these funds, it is more like consuming ROTH monies.  The only tax associated, naturally, will be gains and dividends -and hopefully, they are mostly long-term gains.  I find it most beneficial to have brokerage funds supporting my budget needs; and I do ROTH conversions to the extent of my lower tax bracket limits (my target).

thank you, just wondering how to do the roth conversions. Do I take the MRD from the IRA rollover and convert this to a Roth. I will be taking dividend from both the rollover IRA and brokerage so I assume those count toward the MRD but I am not at the age where I need to take the MRD (I am 62). Thanks again. All of the tax deferred money is in a rollover from previous employers 401k accounts

In your previous response to Travis, you asked "Do I take the MRD from the IRA rollover and convert this to a roth".  Just to clarify, you CANNOT convert your rollover IRA MRD into your Roth.  You must withdraw your rollover IRA MRD first and put it into a taxable account.  Then you can do any Roth conversions you desire.  The money from the MRD can be used to pay the taxes on the Roth conversion.
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#6
sorry, I did not mean convert, I meant withdraw and then transfer. Thanks!
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#7
I'm still not certain of your intentions.  Any money leaving your Rollover IRA is subject to tax as ordinary income.  And if you are younger than 59.5 and withdraw money, then a penalty will also incur unless the withdrawal meets specific conditions.  If you are over 59.5, no penalty is incurred but you can only CONTRIBUTE a yearly maximum (which is less than or equal to your earned income for the year) into your Roth if you do this via a two step process..  But … you can CONVERT any amount you wish from the Rollover IRA into the Roth and pay only the taxes due.  So there is NO reason to "withdraw and then transfer" money from the Rollover IRA to the Roth, as it only limits the amount of money you can move.  If your intention is to move money from the Rollover IRA to the Roth, then just do a CONVERSION.  But if you are not yet 59.5, be sure to pay the taxes from some other account and not out of the Rollover IRA withdrawal, otherwise a 10% penalty of the tax amount will be incurred.  If you CONVERT the entire Rollover IRA into the Roth, there is no penalty.
 
After age 59.5, there is no penalty for using part of the Rollover IRA withdrawal to pay the taxes on the CONVERSION (other than it is always better to pay the taxes from some other account and CONVERT the entire amount).
 
Please let me know if this is not clear because the penalties can be significant and totally avoidable.
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#8
I concur with your approach. That is, draw down your brokerage account first in order to minimize your tax burden prior to making any withdrawals from your IRA.
 
However, you also mention ‘letting your 401k principal’ grow. Do you have both a 401k plus a rollover IRA? If that is the case, then I would recommend that once you do retire that you simplify this into the rollover.
 
Good luck & great profits!
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#9
I retired at age 56 because I had 35 years of SS earnings history and substantial retirement and savings assets. I have a Brokerage account, Inherited IRA, Roth IRA and Rollover IRA. I've been using up my Inherited IRA and Brokerage account for my first phase of withdrawals. I take money out of the Brokerage account and a tiny pension and use the Inherited IRA to pay any tax liability. By the time I am about age 68, I anticipate the Brokerage account will be very low at around 20K and I will have maybe 20K left in the Inherited IRA. At that point I intend to collect Social Security and use the inherited IRA to pay taxes, and maybe I take something out of the Brokerage account if I need more money. At age 70, I will take RMD's from my Fidelity IRA account and pay the taxes from this account and what's left over goes into the Brokerage account which may or may not grow rapidly over time depending upon how I intend to enjoy my money. And if I want to splurge, I've got a nice chunk of money sitting there in my Roth IRA.
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#10
The "standard" response is to draw-down taxable (brokerage) funds first, then tax deferred (IRA, 401K). then tax exempt (Roth).

I'd qualify that.

Most obviously. comparing current tax liability to expected future tax liability is the major factor.

But I suggest that estimating future tax liability is tough under the best of circumstances, and maintaining as much flexibility as possible has its own benefits. So I'd refrain from drawing down any of the 3 legs below 20-25% of my portfolio, almost regardless of current year tax considerations. (exception - if current year is very different from norm for one-off reasons)
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