Retirement knowledge and information often revolves around saving and preparing for your future, but when the retirement years actually come and the savings you’ve spent decades accumulating need to be spent, how does one begin?
The following will give a general outline of which accounts to start with and what accounts to use as a follow up.
Cash
Cash incurs growth at a much lower rate than does most any other holding. Whether it’s cash in a savings account or a cash holding in an investment account, beyond your emergency fund (6 months of expenses), cash should be the first place you pull income from for your retirement years.
Taxable Investment Accounts
Individual, revocable trusts, and joint accounts should be your next stop for income in your retirement years.
Sourcing income from your taxable investment accounts will assist with reducing tax liability as they will be taxed at capital gains rates (given they are held for more than one year) and will come from accounts that historically grow at a slower rate than do other forms of retirement accounts (accounts that are tax-deferred).
Social Security
Turning on your social security income is a great way to protect your remaining nest-egg and begin sourcing income from a social welfare program you’ve been paying into for your entire working life, but this decision isn’t as simple as the first two.
Before turning on your social security benefits, consider if waiting will dramatically increase your expected monthly income or not. If you are past the age of 70, this won’t apply. If you are around the age of 62, waiting could mean a larger payout in the future.
Tax-Deferred Retirement Accounts
Traditional IRA, 457, SEP IRA, 401(k), and 403(b) accounts are taxed once withdrawals begin to be made. Withdrawals can be voluntary as a form of retirement income or they may be required depending on your age as a yearly required minimum distribution (RMD). It’s usually best to wait to withdraw from these accounts for as long as possible to avoid the tax liability.
Roth IRA Accounts
With tax-free growth and qualified withdrawals also being tax-free (for beneficiaries as well), Roth IRAs are of the most tax-efficient savings vehicles available to investors. Allowing these the most time to accumulate, like your tax-deferred accounts, is always a good choice. And leaving these accounts untouched throughout your retirement can mean more money for your loved ones as RMD’s have been done away with (via the SECURE 2.0 Act) and withdrawals after your passing can be deferred for up to 10 years.
Like most tax-related retirement advice, there is no one size fits all. This is why speaking with an advisory firm can develop a retirement roadmap that is unique to you and can be a great step towards protecting your future. For assistance in making these decisions or to schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff-member is awaiting your call Monday through Friday, 9AM to 5PM.
SOURCE:
https://www.kiplinger.com/retirement/which-retirement-accounts-to-withdraw-from-first
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