Retirement Account Withdrawal Order
Does it make sense to add an option to the retirement accounts withdrawal order choices allowing some funds to be withdrawn from multiple account types in the same year in order to optimize taxes? I’m not sure I’d know how to actually calculate that, but I’ve always assumed that the amount I withdraw from my 401k versus my Roth in a given year would depend on factors such as taxes (maybe withdraw some from the Roth to keep me from going to a higher tax bracket, though that may not be a big tax bite to worry about), or the makeup of the underlying funds in the 401k versus the Roth (e.g. equities are down, cash is in the Roth, better withdraw from Roth). Maybe this is too difficult and/or outside of the ESPlanner mission. Thoughts?
RSS
For technical reasons this ups the computational load to the point where it may not be possible to deliver results short of geological time.
We've argued internally about finer control over withdrawal start dates as well as order of withdrawal but haven't come to any conclusions one way or the other and thus far have had more pressing things to deal with. This would help you play with the numbers a bit more but basically it would still come down to, try the withdrawal orders and see if anything interesting happens to your standard of living.
Best,
Dick Munroe
I guess the best thing to do is to PLAN using the order in ESPlanner that projects the best std of living, and then make ACTUAL withdrawals by keeping the plan in mind but making whatever adjustments make sense based on economic particulars at the time you are taking the money out.
In general I find it easier to think about the ESPlanner results in terms of floors and ceilings below which or above which my personal economy isn't sustainable, e.g., if I save less that the recommended amounts (floor), if I spend more than my consumption (ceiling), etc.
Treat the results of the withdrawals as a ceiling (if you draw more than the recommendations your economy isn't sustainable) and re-plan every year (which you should be doing anyway) with the newer numbers.
If I stay above the floor or below the ceiling I don't bump whatever portion of my anatomy is closest.
Clearly there will be the occasional "oh, shit" moment where you just have to spend the money, but that's life. Sometime you just have to make a hole in one direction or the other. At least with ESPlanner the changes in the plan are easy to make and see the effects of.
Best,
Dick Munroe