Which Accounts to Use First in Retirement: 4 Factors to Consider

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Creating a retirement withdrawal strategy isn't easy. Here are 4 factors to consider to determine which accounts to use first in retirement.
Strategic Roth IRA conversions in retirement:
• Roth IRA Conversions: ...
Capital gains tactic for low basis stock:
• 0% Capital Gains Taxes...
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-- About Patrick King CFP® --
Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.
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Опубликовано:

29 июн 2024

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Комментарии : 65

@Erginartesia 10 месяцев назад

I would greatly appreciate you doing a video on the impact of these factors with the new 2023 rules.

@tomj528 2 года назад

Excellent basic rundown but I would point out that you CAN avoid taxes both now and in retirement with a little planning. Currently I'm in the long process of converting ALL of our tax deferred accounts to our Roths, slowly and under taxable limits. When that's done I'll use the same headroom to raise the cost basis of our taxable investments just in case they eliminate the 0% LTCG/QD rate of the 12% bracket. With no mortgage or any other debt our low cost lifestyle is easy and enjoyable while our current retirement contributions all go into our Roths, completely tax free. The government can change the tax code all they like as I bend and twist the 1040 to my will, not theirs because in the end they're INCOME taxes and we have little need for much income. We'll pay the lowest amount for medicare premiums, eliminate RMDs, the "Tax torpedo" and even the "Widow's Tax Trap". The funniest thing is that our current spending is under what social security will be, even after the cuts in 2033 and we have no need nor desire to increase it as we're living very well. This is how retirement is won...cheers.

@PranaWealth 2 года назад

Tom, this is fantastic! You're really maxing it out. The video was intended to get people thinking about how all the different types of accounts work, but you're really taking it to the next level. Sounds like a great idea for a future video! 😉

@srt8turboawdjeep146 Год назад

Let's hope the crocks in DC keep their paws outa our Roth accounts ...

@tomj528 Год назад

@@srt8turboawdjeep146 The only reason the Roth IRA exists is because the government needed tax revenue NOW. I'm guessing that's not going to change anytime soon judging from their continuing to spend like drunken sailors, no offense to drunken sailors of course. If they violate the sanctity of the Roth that will shut off the tap so to speak, not that common sense has ever stopped politicians but I see it as a good "risk", especially as I'm not paying a single penny for our Roth conversions or new contributions. The current puzzle I'm working on is what to do with our emergency funds and vehicle replacement money. The quandary is that increasing interest/yields decreases the amount we can convert to our Roths and equities are too volatile for these funds. I can play a bit of a shell game with our tax deferred accounts but not ideal as every dollar that comes out is taxed as ordinary income and reduces our Roth conversions. Most likely the solution is once again going to be a mix of strategies that will strike a good balance of all available options. The funny thing is all of these years and emergencies, we've never tapped a single penny from our emergency fund which is leaving me wondering why we don't lower the amount as our low cost lifestyle has easily absorbed multiple injury/illnesses, multiple job losses as long as 50 weeks during the great recession and countless minor emergencies such as car repairs, medical/vet bills, roof/water heater/HVAC replacement etc. Many questions to find answers for and even more questions yet to discover.

@BSinNH Год назад

@@srt8turboawdjeep146 Yup.... My biggest fear.

@MILGEO 2 года назад

It's a funny coincidence that I've recently come up with that exact idea. I haven't heard it mentioned elsewhere.

@PranaWealth 2 года назад

Thanks, George!

@edwardglatzmayer5466 2 года назад

Thank you. That was a great "on the surface" presentation. Well done!

@PranaWealth 2 года назад

Thank you, Edward!

@SJMLIEBERMAN 2 года назад

Thank you Patrick for this informative video. :-)

@PranaWealth 2 года назад

Thank you so much, my friend! Hope you are doing well!

@g99se9 2 года назад

My plan is to retire at 65 when I’m eligible for Medicare, and take minimum living expenses out of 401k until 70, then collect SS. My wife is 5 years younger and will retire at 65 immediately taking SS. The first and second years are Roth conversions of around $100k each year. This Roth money is basically an emergency fund that will be used for health expenses, vacations, a large purchase, etc. Between maxing social security (which is a hedge for my wife), her 10 year pension, and $500k in 401k, the Roth will be fun money. That’s my basic plan right now anyway.

@PranaWealth 2 года назад

Bobby, it sounds like you've put a lot of thought into this! I like what you're doing, especially dipping into the tax-deferred accounts early. That'll reduce your RMDs after you hit 72 and smooth out those taxes later in life. Great strategy! 🙌

@g99se9 Год назад

@R Voit who da fook is dis guy? Maybe for you. I’m not poor.

@g99se9 Год назад

@R Voit I’m not sure you understand my personal situation, or ability to do maths. But I appreciate your concern, TOOLBAG.

@kevinh5349 10 месяцев назад

Two important considerations but often fussed about TOO much. Taxes and inflation. People can get so wrapped up in them that the only winners are the heirs.

@meesacreef 2 года назад

Thank you! We are all set for retirement, but I am still not sure about a few of the issues you raised. Food for thought to be sure. :-)

@PranaWealth 2 года назад

@meesacreef -- just keep these in mind and check with your CPA to see what works best for you. So thrilled that you enjoyed the video! Thank you for the great comment! 🙏

@chris-sc 2 года назад

Patrick. You clearly have a lot of knowledge. At the same time, you share your knowledge from a planner's perspective, thus creating a lot of complexity in the abstract. Consider instead focusing on specific customer questions. You can do so by using a case-based approach, with actual or conceived customer cases, thereby answering some specific questions in the process and demonstrating your problem-solving ability. At present, your presentation remains abstract and gives relatively little retirement planning know-how. Consider for instance Dave Ramsey (I know he's not a retirement planner, but he is an advisor). He's extremely concrete and specific with his baby steps and thus provides very actionable advice. Not everyone may agree with his advice, but it's certainly actionable. And he certainly has a following.

@PranaWealth 2 года назад

Christian, this is fantastic feedback. I'll have to start creating case studies that have "real world" details. Since I'm a practicing financial planner, I can't use the details of actual client cases -- there are some odd and strict rules that the regulators give us, and I certainly don't want to run afoul of those! Another part of the issue here has been learning the ropes of RU-vid and growing the channel. I've had to experiment a lot on content to understand what works and what doesn't. RU-vid has been an interesting puzzle to figure out -- simply creating the videos has taken some time and is the result of creating multiple processes. And I certainly want to spend more time working with clients, which what actually puts food on the table. I'd ask that you hang with me for a little while. I'm trying to get a little bit better every day. Understanding how to improve the content is part of that. Your feedback gives me several ideas for future videos. Of course, there's a lead-time between coming up with the idea and creating the content. So, it may take me a couple of months to get them into the queue. Thanks for watching and thanks for the feedback!

@chris-sc 2 года назад

@@PranaWealth Thanks for your response, Patrick. Fully understand that you cannot disclose actual client information (unless your clients agree). But you can create "typical" client cases. Most importantly, you may want to design your videos from the perspective of the client, not the perspective of the planner. At least, this is my suggestion. You have some very sophisticated people in your audience, it appears, who can absorb your information. Yet to move from 10,000 views per month to 100,000 may be helped by talking to a broader audience that seeks basic advice first, and then can still contact you directly for more detailed solutions.

@PranaWealth 2 года назад

I do think that presenting a few case studies on what a typical client would go through could be very helpful. When you say design the videos from the client's perspective, could you give a specific example of what you're talking about?

@Erginartesia 10 месяцев назад

Charitable giving: How does a Donor Advised fund work with IRMAA?

@Sean-jb5gi 2 года назад

Use Pensions 1ST

@stevenobrien595 2 года назад

Excellent video Patrick. Consise and very informative. Keep up the great work! Steve/NY

@PranaWealth 2 года назад

Thanks for the kind words, Steve!

@patcurrie9888 Год назад

Since Roth changes happened sometime ago(when created was just for kids secondary education) and most of us weren't paying attention, we have larger 401Ks or IRAs. As long as we have a decent amount coming in, avoiding taxes seems like too much work for the average retiree.

@baybay7898 2 года назад

thank u

@PranaWealth 2 года назад

You're welcome! I'm so thrilled you got something out of it!

@charleshughes2487 Год назад

Use of Roth accounts later four factors ,one bonus factor / before 72/ could lower taxes when we’ll on to RMD years 2) don’t assume save Roth till last Don’t out bonds and REITS here *( don’t let tax tail wag the dog ! 4) review and adjust - Charitable giving first 1) use tax deferred accounts to give to charity *( lower taxes ) Donor advised funds front load charitable giving financial planner to work with you

@nicholasflorkowski2456 2 года назад

Very good stuff. I have an investment account with some large capital gains built up. My plan is to slowly sell these when I retire to the point where I pay no or minimal capital gains tax. I believe I can sell up to about 80K in capital gains a year and get zero taxes. Is this a viable strategy? This of course assumes no other income and deferring social security for a few year. Let me know your thoughts there.

@PranaWealth 2 года назад

Nicholas, this is a great idea if you can pull it off. There are lots of caveats around the 0% capital gains tax rates. I made a video about this. Check it out! ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-W-2eizHZ39M.html

@frankanderson4176 2 года назад

Good information but may I suggest that you listen to your videos and note the up & down tone and sudden word emphasis (louder volume) in which you speak. Truly respectful, I find it distracting to the point you're trying to make, but I may be the only one. Many thanks-

@PranaWealth 2 года назад

Thanks for the feedback, Frank! I'll take that into account moving forward.

@Blublod Год назад

Please forgive my ignorance, but if I convert distributions from a 401k into a Roth IRA, would that income, which is taxable, put me into a higher tax bracket that would negatively impact my ACA health insurance credits even though the funds are going into a Roth investment and not being used to live on?

@PranaWealth Год назад

Rick -- check with a CPA, but I think that any distribution from a taxable account (converted to a Roth or not) WOULD increase your MAGI and therefore potentially affect your ACA subsidies or subject you to IRMAA penalties for Medicare premiums. Hate to be the bearer of bad news! 😬

@auricgoldfinger8478 2 года назад

My credo has always been to delay taxes as long as practicable. Dipping into your IRA prior to RMDs rarely makes sense, especially with the upward creep of tax brackets. ( Unless it is financially necessary to meet living costs). Similarly, paying a massive tax debt now to do a mega back door Roth conversion is nonsensical for most of us mortals, non- centenarians.

@PranaWealth 2 года назад

Blending distributions from taxable and non-taxable accounts prior to your RMD years can be pretty tax efficient. Once you hit the RMD years, it's hard to make those kinds of strategic moves since you'll have higher income taxed at ordinary rates. You're right -- making a large conversion wouldn't usually make much sense.

@auricgoldfinger8478 2 года назад

@@PranaWealth so I’m 66, 3.6 million in my Ira , 1.2 million in 62 y.o. wife’s. Conservative growth 5 million at time of RMDs for me. About $200000 withdrawal - about 21% effective tax rate. Really not too bad.

@PranaWealth 2 года назад

It may be worth it to take a look at what your RMDs look like if you dip into your IRAs a little bit each year before age 72. Once those RMDs hit, they keep going up and up every year. Sounds like you're on top of things already, but it may be worth a look.

@auricgoldfinger8478 2 года назад

@@PranaWealth My Schwab analyst about 5 years ago suggested earlier IRA withdrawal. I just can’t reconcile paying avoidable taxes now, and sacrificing future growth based on potential future rates/ withdrawal. What if they legislate age 75? What if they eliminate RMDs? Under discussion now, and we know that the Congress is very self serving

@PranaWealth 2 года назад

That's true -- we never know what the tax laws will be. We can only do the best with the information we have today and adjust in the future, if necessary. Just trying to throw out an interesting idea here. Of course, you'd have to talk to your advisor and CPA to confirm everything for your situation.

@Erginartesia Год назад

I believe this strategy no longer works. For instance, i had kept my Roth in my 401k to “smooth out” my RMD .. but now congress has screwed that tactic up. Since Roth within your 401k no longer counts toward RMD minimal withdrawal, it also means you can’t take out a blend of Roth and deferred from the 401k to manage taxes.

@PranaWealth Год назад

Ergin -- you bring up a great point. There are things you can do to blend withdrawals from different accounts, depending on your tax situation. This is more of a general guideline. At the end of the day, everyone needs to do the math!

@reneapalmer6977 2 года назад

What is a fixed index annuities and are they better then a 403b

@PranaWealth 2 года назад

I'd check to see what fixed annuities are yielding these days. There were a lot of studies done years ago about buying a single-premium immediate annuity (SPIA) at retirement. It was an interesting strategy, but with yields being so low, it kind of blew up the strategy.

@srt8turboawdjeep146 Год назад

For early retirement, are we able to withdraw from Roth account at 59-1/2 tax free? gains only?

@kenshepherd6831 Год назад

I believe yes on 59.5 years old no 10% penalty and i don’t think there are taxes on capital gains, dividends, etc… from assets in Roths (IRAs and 401k Roths).

@BSinNH Год назад

Not sure I agree. I plan on retiring anywhere from 9 months from now to end of 25'. After tax accounts makes a lot of sense to use first. As my income drops quickly, I will move money from traditional IRA to ROTH. Whatever I can to keep me in a low tax bracket. Ideally, I would have very little in pre-tax accounts. Roth's are great for many reasons (not counted for SS tax, not counted for subsidies for health insurance, better from an inheritance perspective, and not taxed). Who doesn't think taxes will only increase over time? For me, pay it up front when I can afford it, not when I may need the money for other issues later in life.

@vincentdesalvo1464 Год назад

Clearly you didn’t listen to the full podcast when he said everyone is different and everyone needs to have there own plan that works for them.

@BSinNH Год назад

@@vincentdesalvo1464 Yo Vinny, i did listen. Just my two cents along with a different approach. Leave the condescension at home.

@vincentdesalvo1464 Год назад

@@BSinNH it’s obvious from your response you are a die hard liberal.

@kenshepherd6831 Год назад

Two changes imminent? RMD escalating to 74? And RMD for Roth 401ks going away?

@halfbreed8878 Год назад

You didn't cover all situations...

@carmelaelliott227 2 года назад

I'm 62 years old. My husband passed 2019. I processed SSA, inherited my husband's, and started receiving it March 2021. I'm also receiving VA pension. These two pension combined I have $2,560.00. this is all that I have coming in monthly. My beach house in Philippines was paid for so no mortgage, but I have a car payment of $400.00. I'm able to live with $1,300.00 monthly. I owe credit cards a total of $60.00. no other debts, but no savings also. No health insurance, no life insurance... learning to live below my means now, and also learning to manage my finances. Is it too late, at age 65, will I be able to live stress free life? Can I make it, financially? I started to save $1,350.00 monthly. I have now three months emergency fund, still building it to at least a year... any advice?

@PranaWealth 2 года назад

Carmela -- it sounds like you're doing the right things. Thank goodness that you have the Social Security and VA benefits coming in each month. Those are a lifesaver. One thing that I'd recommend is to look for some sort of part-time work to bring in some extra income. It doesn't have to be a full-time gig -- anything would help. Good luck! 🙏

@MaryOKC 2 года назад

I have less than $500K in my retirement account and when I withdraw the IRS automatically takes 20% from the top whereas because my girlfriend has $1.1M in a same type retirement account, the IRS only takes 8% from the top because they assume she will have the funds to pay her taxes at the end of the year.

@PranaWealth 2 года назад

Hmmm... That's interesting, Mary J. What kind of account is this? Some retirement accounts don't require any withholding (although you just have to write a bigger check on April 15th instead).

@Donkeyearsa Год назад

I think you should burn through your tax deferred money soon as you don't want any of that left over for inheritance as who ever gets it will be screwed over by the IRS. Where normal inheritance is not subject to income tax deferred retirment money is100% of it is subject to income taxes.

@colleenconger5265 11 месяцев назад

As a single I automatically get $14,000 tax deductible so that’s huge

@MLopez-fu8fd Год назад

Thank God, I don't have Children!!! Don't have to worry about Inheritances, or any other such nonsense!!! I can't imagine having to sacrifice late in life just to leave an inheritance to people who never come to see you or really ever think about you except when they want money!!! 🙄🙄