Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

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Tuesday, June 17, 2014

Tips for Withdrawing from Your Retirement Account

Roth ira

When pulling your money out of your retirement plan, you must look at more than just the amount of the withdrawal.  You also will have to consider how much you will owe in taxes.  Since assets can be taxed differently depending upon where they are held, below are three strategies to keep in mind:

  1. Cash in Stocks First. You will pay a lower rate on mutual funds and securities held in a taxable account.  For assets held for at least one year, most investors will pay a 15 percent rate.  Taxpayers with adjusted incomes above $406,750 still get a break, but will pay a slightly higher gains rate of 20 percent.
  2. Tap into Your Tax-Deferred Accounts. Withdrawals from 401(k)s, 403(b)s, 457s, Keoghs and IRAs are taxable at your marginal rate.  The law says you must begin taking money out by age 70 ½ through “required minimum distributions.”  If you do not start withdrawing money from your tax-deferred account, the IRS will fine you. 
  3. Withdraw from Your Roths. Roth IRAs and Roth 401(k)s operate in a similar way—you pay taxes on money contributed, but not on withdrawals.  There are no requirements you take distributions after age 70.  “The longer you can keep your money in [Roths], the better . . . However, it could be wise to use assets in your Roth IRA for large emergency expenses, like major home repairs or medical bills.  If you could withdraw a lot of money from a tax-deferred account, it might push you into a higher tax bracket.”  If you have a high-income year and investments in a taxable account have a lot of appreciation, it may be best to withdraw from a Roth IRA.

See John Wasik, A Three-Step Plan for Retirement Withdrawals, Forbes, June 16, 2014. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

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