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Income Tax in Retirement Questions
Posted on 5/26/16 at 3:48 pm
Posted on 5/26/16 at 3:48 pm
How do taxes work when you are in retirement at an age old enough to withdraw from your retirement accounts without penalty? So all or a large part of your income is coming from stocks/ bonds and taxed at long term gains? It is possible to have no income outside of long term gains right? So if I have say 100,000 in long term gains income and I work for myself for 10 hours a week to make say 25,000 a year what income level is that taxed at? In other words, do long term gains increase your tax bracket for what regular income you do make?
I mean I know this seems stupid obvious, but is it? I feel like it is rarely discussed.
To make it easy let's say I have no debt and I have $3 million in retirement accounts, 1.5 in roth IRA and 1.5 mil in 401k/ SEP IRA type of post tax account.
If I need $75,000 a year to live would I not just eat up my Roth first and let my 401k keep growing since that's the most tax efficient?
Any other thoughts and comments especially from any retirees currently doing this?
I mean I know this seems stupid obvious, but is it? I feel like it is rarely discussed.
To make it easy let's say I have no debt and I have $3 million in retirement accounts, 1.5 in roth IRA and 1.5 mil in 401k/ SEP IRA type of post tax account.
If I need $75,000 a year to live would I not just eat up my Roth first and let my 401k keep growing since that's the most tax efficient?
Any other thoughts and comments especially from any retirees currently doing this?
This post was edited on 5/26/16 at 3:50 pm
3
Posted on 5/26/16 at 4:19 pm to baldona
Withdrawals from a 401K retirement account are taxed as ordinary income, not capital gains.
This post was edited on 5/26/16 at 4:20 pm
Posted on 5/26/16 at 4:36 pm to baldona
its a good bit more complicated than that. How old are you? If you are not close to retirement, then I wouldn't bother worrying about this. If you are nearing retirement, then I would talk to a financial professional on how to meet your income needs.
Posted on 5/26/16 at 8:43 pm to Layabout
quote:
Withdrawals from a 401K retirement account are taxed as ordinary income, not capital gains.
They also have certain mandatory distribution rules, so you just can't hang onto all that less tax advantageous money until you use all the more tax advantageous you have.
Posted on 5/26/16 at 11:24 pm to baldona
quote:
If I need $75,000 a year to live would I not just eat up my Roth first and let my 401k keep growing since that's the most tax efficient?
Because you are going to want to eat up the fund that you will have to pay taxes on one way or another to spare the one that is tax free.
I don't see how you consider killing your tax free growth to be "tax efficient."
Posted on 5/27/16 at 8:30 am to Volvagia
quote:
Because you are going to want to eat up the fund that you will have to pay taxes on one way or another to spare the one that is tax free. I don't see how you consider killing your tax free growth to be "tax efficient."
I obviously don't have a good grip on retirement taxes but I wanna say 'seriously' to this?
Let's say I have an equal amount in my Roth which is withdrawn tax free and my 401k which is withdrawn with taxes. At 59.5 it seems best to withdraw entirely from my Roth and not touch my 401k to delay paying taxes. Why pay taxes at 59 when I can wait to pay them at say 70? Then if I pass away and pass it on my kids can delay the taxes additionally?
The benefit of a tax free account is not paying taxes, if I never put that to use then there is no inherent benefit at all.
Posted on 5/27/16 at 8:40 am to baldona
Someone stop me if I'm stupid.
Volvagia's argument is to take 401k first because you've already received the benefit by lowering your present day taxes, so keeping it in longer doesn't bestow any more benefits.
Your Roth money has already been taxed, it's benefit is the non taxing of gains, which are received as long as it stays in the account, therefore, it should stay in longer.
As for, "not getting the benefit at all" well you do receive a benefit if you die with money in your ROTH, that is, that money has grown more to be inherited by your heirs if you're into that sort of thing I suppose. But either way what benefit would you receive if the opposite were true? You're fricking dead.
Volvagia's argument is to take 401k first because you've already received the benefit by lowering your present day taxes, so keeping it in longer doesn't bestow any more benefits.
Your Roth money has already been taxed, it's benefit is the non taxing of gains, which are received as long as it stays in the account, therefore, it should stay in longer.
As for, "not getting the benefit at all" well you do receive a benefit if you die with money in your ROTH, that is, that money has grown more to be inherited by your heirs if you're into that sort of thing I suppose. But either way what benefit would you receive if the opposite were true? You're fricking dead.
This post was edited on 5/27/16 at 8:45 am
Posted on 5/27/16 at 8:53 am to Teddy Ruxpin
quote:
As for, "not getting the benefit at all" well you do receive a benefit if you die with money in your ROTH, that is, that money has grown more to be inherited by your heirs if you're into that sort of thing I suppose. But either way what benefit would you receive if the opposite were true? You're fricking dead.
Is any non-Roth 401K money, left over after you die, taxed as normal income to your heirs?
Posted on 5/27/16 at 8:59 am to Y.A. Tittle
Yes I'm only in my 30s, but I have an Llc I have a Sep-Ira in, we both have a Roth, and my wife and I both have 401k options at work though they are unmatched. There's not very many people that can max both 401ks and Roth financially. So while tax advantages now are important, I don't think it's off base to additionally plan your taxes when you retire. Obviously in 25-35 years the tax codes could change drastically, but I'm not going to
Not plan.
My questioning is because at the beginning of every year I'm usually holding $4-5 k that i saved from good budgeting from the year before and I'm looking to invest since I have until April of the following year. In years past it has been all into my Roth's, but maybe I should look to put more into my SEP. Maybe I'm just over thinking it.
Not plan.
My questioning is because at the beginning of every year I'm usually holding $4-5 k that i saved from good budgeting from the year before and I'm looking to invest since I have until April of the following year. In years past it has been all into my Roth's, but maybe I should look to put more into my SEP. Maybe I'm just over thinking it.
This post was edited on 5/27/16 at 9:07 am
Posted on 5/27/16 at 9:05 am to Y.A. Tittle
quote:
Is any non-Roth 401K money, left over after you die, taxed as normal income to your heirs?
I'm assuming it counts to the individual max of $5.5 mil to pass down no different than anything else? There are additional restrictions on retirement money passed down though like I believe a percentage has to be withdrawn by the heirs.
Posted on 5/27/16 at 9:05 am to baldona
quote:
Yes I'm only in my 30s, but I have an Llc I have a Sep-Ira in, we both have a Roth, and my wife and I both have 401k options at work though they are unmatched. There's not very many people that can max both 401ks and Roth financially. So while tax advantages now are important, I don't think it's off base to additionally plan your taxes when you retire. Obviously in 25-35 years the tax codes could change drastically, but I'm not going to
Not plan.
My questioning is because at the beginning of every year I'm usually holding $4-5 k that i saved and I'm looking to invest. In years past it has been all into my Roth's, but maybe I should look to put more into my SEP. Maybe I'm just over thinking it.
The general rule is contribute to 401k until they get full matched, then max roth, then max your 401k. that probably changes since you don't get matched. I personally like the benefit of reduced income taxes, its a benefit I get now vs. later. And my tax rates are higher now than they will be when I retire.
I think the trick is that you don't know what taxes are going to do in the future. I personally think spreading it around to both pre tax and post tax accounts is the best strategy.
We know its going to change, but to what? 25 years ago the Roth didn't exist, and 401ks weren't that popular. Traditional IRA is what people went with.
This post was edited on 5/27/16 at 9:07 am
Posted on 5/27/16 at 9:14 am to baldona
I have no clue. You'd think 401k money would get taxed because the government hasn't gotten it's cut yet until it's disbursed. No way they pass on that right?
This post was edited on 5/27/16 at 9:15 am
Posted on 5/27/16 at 9:17 am to Hawkeye95
I agree with this. I came to that conclusion after we became roth ineligible and wanted to lower AGI for lots of reasons so we max 401ks now.
I'll probably try to backdoor some roth money because why not.
I'll probably try to backdoor some roth money because why not.
Posted on 5/27/16 at 9:31 am to Teddy Ruxpin
quote:
I'll probably try to backdoor some roth money because why not.
backdooring is harder than it looks. Its great if you are lower income, and don't have a rollover. But if you have a rollover, forget about it.
Posted on 5/27/16 at 10:10 am to Hawkeye95
Ya, I've got nothing besides a Roth and 401k.
My wife switched jobs and her old 401k is fine so as long as it can stay there I think we're good.
My wife switched jobs and her old 401k is fine so as long as it can stay there I think we're good.
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