Retirement knowledge and information often revolves around saving and preparing for your future, but when the retirement years 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 cash held 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 (tax-deferred accounts).
Social Security
Turning on your social security income can be a great way to help preserve 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 whether 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 one 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 RMDs 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 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, 9 AM to 5 PM.
SOURCE:
https://www.kiplinger.com/retirement/which-retirement-accounts-to-withdraw-from-first
All information contained herein is derived from sources deemed to be reliable, but cannot be guaranteed. This material is provided as a courtesy and for educational purposes only. This material is provided as a courtesy and for educational purposes only.
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Individuals are encouraged to consult their tax and legal advisors (a) before establishing or changing a Retirement Account or Retirement Plan, and (b) regarding any potential tax, ERISA, and related consequences of any investments or other transactions made with respect to a Retirement Account or Retirement Plan. Tax laws are complex and subject to change.
Steward Partners, its affiliates, and its Financial Advisors do not offer tax or legal advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
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