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Returning Member
posted Jul 15, 2021 10:59:13 AM

Traditional vs Roth withdrawl

What is the best formula to use when deciding whether to take withdrawals from a  traditional or a Roth plan, either 401k or IRA?

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2 Replies
Employee Tax Expert
Jul 15, 2021 11:49:50 AM

Hi Rick,

 

I hope that you are doing great and enjoying a fine "cool-er summer"

 

Let me clarify your question:

  1. You have a: 
    1. Traditional IRA
    2. Roth IRA
  2. Withdrawals from a traditional IRA are age dependent, by that I mean distributions are required at age 72
    1. These are termed Required Minimum Distributions (RMD) 
      1. RMD's are based on using one of three Lifetime tables (based on marital status or inheritance)
  3. Withdrawals from a Roth IRA are flexible and can enhance your your cash flow needs
    1. There is no RMD
    2. Withdrawals are nontaxable

In short, your tax position, provided your cash requirements are met, will determine the amount of money that you withdraw from your Roth accounts, tax exempt investments etc

 

Honestly, I suggest that you speak with one of our Mint or TurboTax professionals to hone the details.

 

All the best!

Expert Alumni
Jul 15, 2021 11:57:55 AM

There is no best formula to determine which account to withdraw funds from. 

 

Withdrawals from your regular, taxable 401k and IRA's are determined by required minimum distributions (RMD's) so you have no choice on the minimum amount you must withdraw. If your RMD's plus SS income plus other income or savings in non-retirement accounts meet your needs you may want to take no withdrawals from the Roth account since Roth IRA's have no RMD and grow tax free. 

 

You may even want to consider converting some of your taxable retirement account to a Roth. However, this will depend on your tax situation.  If you have multiple accounts and significant assets it may be best to work out an initial plan the help of a CPA or CFA who can review all your finances and determine the most tax efficient approach.