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Tue Feb 25, 2014, 05:32 PM

Withdrawing Money and Cutting Taxes

Investors can save a lot on taxes by putting money away in 401(k) plans and individual retirement accounts. But many investors who are in or near retirement also can end up paying less in taxes in the long run by carefully timing withdrawals from those savings vehicles. Retirement-account balances have ballooned in size, but a high balance can be a curse as well as a blessing when it comes to taxes, particularly for older investors, financial advisers say. Once account holders reach the age of 70˝, they often must withdraw a minimum amount each year, determined by their age and account balance.

If frugal investors delay taking money out earlier to let their accounts grow then those required minimum withdrawals could push them into higher income-tax brackets and increase the taxes owed. The solution: Start taking at least some money out in the decade or so before turning 70˝, even if it isn't needed for current expenses, financial advisers and tax experts say. Beginning at age 59˝, account holders can take money out of tax-deferred accounts without penalty. This strategy works best for investors in a lower tax bracket—as many are in the early years of retirement, and in some cases before retirement.


The client had retired early to travel with his wife, and had about $800,000 in an IRA as well as other savings. Mr. Prvanov recommended the man take out $30,000 to $40,000 a year, pay income tax on it and put it into a Roth IRA, where gains and payouts aren't taxed. Recently, the client turned 70, and he will move into a higher tax bracket when he starts taking the required minimum withdrawals. But the leap won't be as great as if he had left everything in the IRA, Mr. Prvanov says. Meanwhile, the client has built up $500,000 in Roth IRA.

Calculating whether the strategy is worthwhile can be tricky. Investors need to figure out which tax bracket they would end up in if they withdrew money from a tax-deferred account, and how much they would therefore end up paying on the withdrawals, Mr. Prvanov says. Then they need to estimate their tax rate and the amount of their required minimum withdrawal after 70˝, which is difficult because it depends to a great extent on how their investments perform, advisers say. But even an estimate will help them figure out how much in taxes they would pay in that scenario.



(If you cannot open by clicking, try copy and paste the title onto google).


I like the idea. We are getting closer to 70 1/2, and don't have all that much savings besides IRA, but decided to give it a try and will be converting some IRA to ROTH this year.

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Reply Withdrawing Money and Cutting Taxes (Original post)
question everything Feb 2014 OP
SheilaT Feb 2014 #1
question everything Mar 2014 #2
SheilaT Mar 2014 #3

Response to question everything (Original post)

Wed Feb 26, 2014, 02:32 PM

1. This clearly illustrates why those with


substantial assets (and I certainly consider 500k considerable) probably ought to find a good financial advisor of some kind.

Oh, and your link requires a log in to read the rest of the article, unfortunately.

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Response to SheilaT (Reply #1)

Sun Mar 9, 2014, 01:01 PM

2. Sorry about the link

I try to provide the main points..

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Response to question everything (Reply #2)

Sun Mar 9, 2014, 01:40 PM

3. You did, and thank you for that.


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