Midyear 2016

Plan wisely for post-retirement withdrawals

Planning for retirement doesn’t end when you stop working. Instead, the questions shift from how to save for retirement to how to begin withdrawing from your accounts. Here are tips for making the most of retirement plan withdrawals.

Know the basic rules. Funds withdrawn from a regular IRA or 401(k) are taxed at your ordinary income tax rate, which could lead to a surprising tax bill come April 15th. Worse, you can only put off withdrawals from these accounts until age 70½, when required minimum distributions kick in. (An exception is if you have a 401(k) and are still working for the company where you have the account. In that case, you can delay withdrawals from that plan.) Withdrawals from a Roth IRA are tax-free and are not subject to required minimum distribution rules.

Consider delaying withdrawals. In the years prior to age 70½, you might consider keeping your retirement accounts untapped and instead live off capital gains within a taxable account. The advantage: the tax rate on long term capital gains is likely lower than your marginal rate.

midyear_pg5Remember the fundamentals. No matter where you begin drawing funds, you will have a portfolio of securities to monitor and decisions to make regarding what to sell along the way. Consider selling volatile securities first, leaving safer investments for later in life when you have less time to recover from a mistake. At the same time, avoid being too conservative, especially in the early years of retirement.

Your retirement plan withdrawal strategy could impact the taxation of your social security benefits as well as your eligibility for certain deductions. Contact us for additional suggestions for tax-efficient retirement account withdrawals

© MC 2016

Philip L. Liberatore, CPA


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