withdrowal strategy

4 replies
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Hi. I have a few retirement accounts. What's the best withdrawal strategy?

Alumni - Intuit

Hi Vainerb, good day, glad to provide some general guideline. The strategy is to minimize the income tax consequence. Depending on your age and filing status, you should withdraw from the taxable account(s) to take advantage of standard deduction.

For example, Single filing status, under age 65, 2021 standard deduction is $12,550. Once this is filled up, then you can consider withdraw from account such as Roth IRA, if qualify, tax free.

Of course, you should consider the impact of Social Security . More other type of income would make social security taxable.

A portion of Social Security retirement and disability benefits may be taxable when income exceeds a taxpayer’s base amount. Certain amounts that are nontaxable for regular income tax purposes are added back to determine taxable Social Security benefits. The base amount is determined by the taxpayer’s filing status.

MFJ $32,000

Single, HOH, QW, MFS (lived apart from spouse all year) $25,000

MFS (lived with spouse at any time during the year) $0

Rate of taxation. Income above a taxpayer’s base amount will result in an inclusion of up to 50% (85% for higher incomes) of the taxpayer’s Social Security benefits on line 6b, Form 1040. If a taxpayer’s income is above the base amount, use the Social Security Benefits Worksheet:

Page 16 of IRS Pub 925 - Worksheet 1

https://www.irs.gov/pub/irs-pdf/p915.pdf

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M

mfields2

Level 5

Hello -

Our focus is on taxes and the tax implication of withdrawals, and you should probably have a financial adviser review your accounts to suggest a strategy. But here is some general advice about withdrawals and tax implications of those withdrawals:

1) Roth accounts (if you have any) give you the greatest flexibility in choosing a distribution point (because they can be withdrawn without taxes) BUT also can provide the best "inheritance" of all "qualified" (tax-deferred) retirement accounts.

2) Withdrawals in retirement will affect how much of your social security will be taxed. See the information in this post for a deeper explanation: https://ttlc.intuit.com/community/retirement/help/why-did-the-taxable-amount-of-my-social-security-benefits-change-so-much-from-last-year/00/26963 .

Your question is probably more about investment strategy and "stretching out" your existing accounts to make sure that you don't deplete them too quickly, which is beyond the scope of what we can answer here.

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V

vainerbAuthor

Level 2

Thanks for your reply. My question was really about the 401k and other similar accounts. Is there any advantage to taking out the cash or selecting annuities with monthly payouts?

KochuKAnswer

Alumni - Intuit

Hi Vainerb, good day, glad to provide some general guideline. The strategy is to minimize the income tax consequence. Depending on your age and filing status, you should withdraw from the taxable account(s) to take advantage of standard deduction.

For example, Single filing status, under age 65, 2021 standard deduction is $12,550. Once this is filled up, then you can consider withdraw from account such as Roth IRA, if qualify, tax free.

Of course, you should consider the impact of Social Security . More other type of income would make social security taxable.

A portion of Social Security retirement and disability benefits may be taxable when income exceeds a taxpayer’s base amount. Certain amounts that are nontaxable for regular income tax purposes are added back to determine taxable Social Security benefits. The base amount is determined by the taxpayer’s filing status.

MFJ $32,000

Single, HOH, QW, MFS (lived apart from spouse all year) $25,000

MFS (lived with spouse at any time during the year) $0

Rate of taxation. Income above a taxpayer’s base amount will result in an inclusion of up to 50% (85% for higher incomes) of the taxpayer’s Social Security benefits on line 6b, Form 1040. If a taxpayer’s income is above the base amount, use the Social Security Benefits Worksheet:

Page 16 of IRS Pub 925 - Worksheet 1

https://www.irs.gov/pub/irs-pdf/p915.pdf

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"