We know the 1st half of retirement savings, let's discuss the 2nd half of spending it

[QuarterMillionMan]

1) Roth IRAs, specifically the 5 year rule and needing to be at least 59.5 to begin withdrawing to avoid penalties. Never mind the RMD (required minimum distributions) of age 72 because I won't be waiting until 72 to withdraw (lol). What does the 5 year rule entail? I've been maxing out every year since like forever so let's say at 60, I start withdrawing money does that mean I cannot withdraw funds that I had contributed from 55 to 60, but I can withdraw funds deposited before 55?


2) 401(k) or 457(b) plans, I believe that I can withdraw my 457 contributions at any age as long as I am separated from my employer (ie, retired, quit, fired, etc). Are there any other stipulations?

[disneysteve]

1) Roth IRAs, specifically the 5 year rule and needing to be at least 59.5 to begin withdrawing to avoid penalties. Never mind the RMD (required minimum distributions) of age 72 because I won't be waiting until 72 to withdraw (lol). What does the 5 year rule entail? I've been maxing out every year since like forever so let's say at 60, I start withdrawing money does that mean I cannot withdraw funds that I had contributed from 55 to 60, but I can withdraw funds deposited before 55?

You can withdraw contributions at any time tax free. The 5-year rule applies to withdrawal of earnings. For those to be tax free you must be at least 59.5 years old and it must be at least 5 tax years since you first contributed to any Roth IRA that you own. It does not need to be 5 years for the specific Roth you are drawing from if you have more than one.

If you’ve been contributing to a Roth IRA for more than 5 tax years you’re all set once you turn 59.5.

[disneysteve]

Here’s the 457b info.
https://www.brla.gov/DocumentCenter/...irement%20plan.

You can withdraw after leaving the job or you can rollover the funds to an IRA. If you withdraw money they’ll probably automatically withhold 20% for taxes so just keep that in mind.

[disneysteve]

Depending on your situation and make up of your portfolio, it's often a better idea to draw from your taxable investments first and allow your tax sheltered investments to continue to grow. I don't expect to touch our Roths, IRAs, or 401k for at least 2-3 more years with the exception of my inherited IRA from which I have to take RMDs. My wife and I are both past 59.5 so we're eligible to draw from them but as long as we have sufficient income without touching them, I'll leave them alone as long as I can.

[QuarterMillionMan]

This would be a good problem to have If I don't need to touch my Roth IRA or 457 or 401k until 72 when RMD kicks in but there's no mention how much has to be taken out. Is there a formula or set amount like $10000 a year or $35,000 a year, etc.

[kork13]

This would be a good problem to have If I don't need to touch my Roth IRA or 457 or 401k until 72 when RMD kicks in but there's no mention how much has to be taken out. Is there a formula or set amount like $10000 a year or $35,000 a year, etc.

There's probably a formula, but simpler is to just use an RMD calculator. This one seems fairly official (from the SEC). It's based on your account balance & how close to dead their life expectancy table thinks you are. I think for my father, we estimated at 72 with $1M in his traditional TSP, he'd have an RMD around $35k for the year.

[disneysteve]

RMD each year is based on a life expectancy table and the year-end balance the prior year. So my 2024 RMD was known to me once I had the 2023 year end balance.

[kork13]

To your original question, my thought would be similar to Steve -- draw down taxable & inherited accounts first, then traditional, then Roth. That maximizes the opportunity for tax-free growth.

And/or use Roth withdrawals to provide tax-free income when you need to keep your AGI lower for various reasons.

Last thought: keep in mind that they assume that upon beginning withdrawals from your Roth IRA, you are first withdrawing your contributions, period dot. That is always assumed to be the case, so it makes withdrawing only up to your total contributions fairly simple.

[QuarterMillionMan]

This was my 2023 balance and I'm 58 (but used the 73 year old RMD) which my RMD would be $15,000. However, at 73 my balance might be $700,000, who knows.

[disneysteve]

Easy enough to play with the calculator and plug in different numbers just to see how much it changes the RMD but if your account roughly doubles so will your RMD more or less.

[srblanco7]

To your original question, my thought would be similar to Steve -- draw down taxable & inherited accounts first, then traditional, then Roth. That maximizes the opportunity for tax-free growth.

And/or use Roth withdrawals to provide tax-free income when you need to keep your AGI lower for various reasons.

Last thought: keep in mind that they assume that upon beginning withdrawals from your Roth IRA, you are first withdrawing your contributions, period dot. That is always assumed to be the case, so it makes withdrawing only up to your total contributions fairly simple.

I'm quite certain the correct answer could/should vary based on your personal situation. I'm thinking along the lines of:
1. Taxable dividends and cap gains (hopefully all/primarily qualified dividends) from brokerage account
2. 401k withdrawals up to the 12% tax bracket (potentially plus the standard deduction with room left for non-qualified dividends)
3. Withdrawals from taxable accounts (asset sales)

My goal in structuring/creating a withdrawal strategy is to minimize income taxes and withdraw from 401ks to decrease the potential for a tax time bomb with future RMDs.

I have not, as of yet, really mapped a strategy as to whether Roth conversions make sense.

[skives]

I thought there were no RMDs on Roth IRAs anymore?

[disneysteve]

I thought there were no RMDs on Roth IRAs anymore?

That’s correct. The exception is if you inherit a Roth, as I did. I already take RMDs from that.

[LivingAlmostLarge]

I'm quite certain the correct answer could/should vary based on your personal situation. I'm thinking along the lines of:
1. Taxable dividends and cap gains (hopefully all/primarily qualified dividends) from brokerage account
2. 401k withdrawals up to the 12% tax bracket (potentially plus the standard deduction with room left for non-qualified dividends)
3. Withdrawals from taxable accounts (asset sales)

My goal in structuring/creating a withdrawal strategy is to minimize income taxes and withdraw from 401ks to decrease the potential for a tax time bomb with future RMDs.

I have not, as of yet, really mapped a strategy as to whether Roth conversions make sense.

It's not really an all or nothing strategy. You could do it one year and not the other.

[Like2Plan]

This would be a good problem to have If I don't need to touch my Roth IRA or 457 or 401k until 72 when RMD kicks in but there's no mention how much has to be taken out. Is there a formula or set amount like $10000 a year or $35,000 a year, etc.

If you want to have a visual for over your lifetime--here is a link to a chart: https://www.irs.gov/publications/p59...blink100090310
You would take the value of the pretax asset as of 31 Dec and divide it by the life expectancy number on the table (note--there are different tables depending on your situation). You will note that life expectancy goes down as you get older and the RMD will be higher (tax man wants his taxes). There are little nuisances to this. One is Qualified Charitable Donations (QCDs) which are allowed starting at age 70.5 ( https://www.irs.gov/newsroom/reminde...fts-to-charity) --They will count towards your RMDs and will not count towards your taxable income (as long as it goes directly from your IRA to the charitable organization and it has to be the first distributions of the year).

They have made several changes to RMDs in the past few years. I believe they changed the life expectancy tables (from when I first looked at it anyway 8 years ago). They have changed the beginning age a couple of times.The latest change from the secure act:
"The RMD rules require individuals to take withdrawals from their IRAs (including SIMPLE IRAs and SEP IRAs) every year once they reach age 72 (73 if the account owner reaches age 72 in 2023 or later), even if they're still employed."
https://www.irs.gov/newsroom/irs-rem...e-law-for-2023

So, anyway I'm not sure what the life expectancy tables will look like next year. I populated an excel spread sheet so I could visualize what the RMDs would look like for DH and myself and I will have to make adjustments for the age 73 change (and possibly the life expectancy tables).