Hey Kevin If I have 2 million in my Trust account at RBC can I withdraw around 100 K a year since at my age 70 i have around another 15 or some more years since life expectancy is 85?
I retired last June. I have a Rollover IRA, a Roth IRA and a taxable brokerage account. I've been living off of my taxable brokerage account, which I expect to do until I collect Social Security. I'm also doing Roth conversions this year, filling up the 10% and 12% tax brackets. I've done about $30,000 in conversions so far this year and will wait to see what room I might have left at the end of the year. I'd like to avoid pushing my LTCG into the 15% bracket. We shall see.
Thanks, Kevin, for covering this information & especially for making your software available. I’m a retired MD,but know *nothing* about making good decisions regarding retirement. I will spend the remainder of the weekend viewing & learning from your videos & software. I was a pediatrician, the lowest paid MD, so my portfolio is quite modest. Consequently, I need all the help I can get! Thanks for educating this OG.
I have wondered for many years, why it is that the American education system hasn't or doesn't teach finances, especially, early on (elementary school) and continued throughout HS. This is great info and if I may add, a great read is the (any) story about Alexander Hamilton and his story relating to treasury/financial system. An eye opener!
I ended up homeschooling..life skills, which includes learning to delay gratification and saving and simple finance, cooking..are important skills to learn.. If school won't teach it, parents need to
Perfect topic. I'm 3 years in retirement @57, did a good job in the accumulation phase with net worth of $3M+. The problem is I haven't spent any of it despite knowing I have no concerns of running out of money. Some minimalist traits that helped me save are not easily cast aside. I sense I'll be dead and gone with plenty of money left behind, but that was never a goal.
I have a feeling I’m going to be in your boat too. I’m 52 and have $3mil socked away. I hope to retire as soon as next year. But I’ve been in a frugal savings mindset my whole life. That transition without feeling anxiety is going to be tough.
The ROTH is the last thing you should draw from in my opinion. The money you take out is tax free, yes, BUT once it is out of the account it can no longer be returned, and that money was _earning_ money (presumably) which would have been tax free.
@@Dividendsmattertoo Or, you can reinvest the dividends within the ROTH and the profits that result will also be tax free. Once dividends are taken out, though what is taken out CAN be reinvested outside the ROTH, the proceeds will be taxable. If one absolutely needs the dividends then by all means take it, but if not keeping it in is a no-brainer.
We opted to draw from our regular investment account first. We retired at 62 and were relying on ACA provisions for health insurance. By using our regular investment account it kept our Modified Adjusted Gross Income (MAGI) low. As a result our health insurance was highly subsidized and we had zero taxes. We figure we avoided close to $10k a year in health insurance and tax expenses for 3 years. We started income streams at age 65 in conjunction with Medicare coverage. We also made Roth conversions up to bracket creep starting at age 65 and will continue to do so until RMD age. These are the only transactions we've conducted with our IRAs.
There sems to be a focus here on minimizing the taxes rather than maximizing the after- tax wealth. The latter is to be preferred. It becomes rather complicated when considering the fact that wealth is inheritable and for some accounts you must consider your life expectancy and the tax rates of those inheriting your wealth.
A friend died last month at 64 and collected $0 from retirement and SSN. Never retired. Always seems questionable to miss out on 10 years SSN as you bet you’ll live to 70. My wife died at 50. Neither of my parents lived past 65. We don’t all live forever. I understand there’s math involved but seems that using SSN earlier uses “other people’s money” such as the governments payments to you v drawing down more of you so called own money in your retirement accounts. Though it’s clear it’s not “your money” because unless you spend it all you never use what you saved all your life - it’s for your heirs then.
I thought about how to reply to your comment, but couldn’t figure out how to say in a brief way. So, I’ll leave you with some of my own thoughts/experiences and hope that all who read them will balance what is in their best interests. I to had a friend who passed away a year before retirement and never got to see a penny. I also lost my high school sweetheart, who was killed at 16 years old and before she could save a penny. I also had a grandmother who lived to 101. So, I guess as is good prudence with many things. Hope for the best, plan for the worst. Or; live for today, but not at the expense of tomorrow. Best wishes.
I agree on this. Social Security is use it or loose it. If you wait and don't take it you aren't going to be leaving it to someone to inherit like other payment sources. There is a break even age and other assets will continue to grow if you are taking and using Social Security instead of drawing from them.
Investing has been rather rewarding to me and I've learned that getting a good return is very much attainable if you know your way around it. Do not let anyone tell you it’s impossible.
Luck is way off the picture. Jonas Herman, a licensed fiduciary is the brain behind my success. I've gotten into a plethora of assets with $21k spread across stocks (options and futures) for the short term and Roth IRA, index funds, cryptocurrency and ETFs, for the long term. Now with over 91k in roi, I sit back and just reinvest at intervals while I handle my other businesses.
Thank you for this lead. I mailed him. Did my due diligence on him before we scheduled a chat. Also, brilliant resume I must say! I intend on getting started right away.
I think you missed the boat on someone who retires early. I retired at 61 1/2. I have 3 1/2 yrs until i can go on medicare. Healthcare is the number 1 thing i will not skimp on. Going through the ACA plans, the subsidies are tied to your gross income, this also includes your spouse. In order to get a decent policy under $500/month we had to cap our income at 40 grand. That means no roth conversions, no ira withdrawls. I planned this a few years ahead and stock piled enough cash to pay bills for 3 1/2 years. So, sometimes one does not really have a choice. Btw, the policy without subsidies was $1325/month. I also waited to retire until my wife hit 65 and went on medicare. She has a cancer history which is a whole other ball of wax.
My spouse and I decided to retire at 62. We knew we would incur an income monthly loss of $1000. We also knew we had to bridge our health insurance for 3 years. The ACA ( Obama Care) came to the rescue and so did Trump ( bless his heart). We had IRA's totally $600,000. Are income at retirement decreased from $110,000 to $45,000. We were not married at the time we retired. The ACA premium is based on individual income. Our premiums for the ACA was $75 monthly for me and $50 monthly for my partner. Then Trump was elected and his first act was eliminating the tax subsidy. By doing so, another subsidy kicked in..resulting in my premium falling to $50 monthly and my partner's to $25. Total coverage with a max out of pocket of $1700. Bless Trump's little heart. Lol Anyway ..65 arrived ..partner and I celebrated our 25th anniversary by joining hands in marriage. We were met with Medicare..after contributing to Medicare since age of 18..Medicare premium was $165 monthly plus another $35 monthly for supplemental coverage. And out of pocket cost soared to $4000. EACH. Long story short..our $600,000 is invested in a 6% government agency bond (.not callable for 6 months) we have always lived within our means. Home is mortgage free and any credit card debt to choose to carry is always with a zero interest card. . We will have to begin RMD at age 72. The withdraw will simply be transferred to our joint non IRA account. One thing I noticed...when we withdrew $15 000 to cover cost of a new home ..our tax return for that year was zero..for both state and fed.
@johnemanuele8695 At least you weren't forced to take a covid vaccine like I had to or lose your job under Biden (bless his new world order heart) remember they told you the vaccine will keep you from spreading covid and getting sick? Shut the economy down too. At least Trump (bless his 2nd term president November heart) let me dip into my 401k up to 100k.
@@johnemanuele8695Uh, pretty sure Biden, bless his heart, raised the RMD age to 75. And Trump AND the Republicans tried to do away with Obamacare completely, except for the courage of John McCain, bless his heart! Now, if Project 2025 is allowed to be implemented, Trump elected that is, the Project 2025 stated goals is to do away with Medicare all together, and cut Social Security. Be careful what you wish for.
I have dreamed of making more than $200,000 in income all my life and would not care getting hit with high tax rate but that dream never comes true, now that I have a chance in retirement to make that dream comes true without even working that is already a pretty good deal. I will just sleep through this tax issues and enjoy life then when I have time and I may do something about it with the information provided here, thank you Kevin
Dad made sure to position things such that he got less in his lifetime but left mom in a position of getting more of social. She out lived him by almost 21 years. It’s not me I’m worried about, it’s my fiancée. So will make sure I can get by until she gets a better benefit.
We pull from tax deferred accounts until we hit the spot where the 2nd level of IRRMA kicks in and then we pull the rest from ROTHs since that extra 4% the 2nd level of IRRMA cost essentially gives us 4% more on the ROTH. Not pulling a lot from the ROTH, but some.
Been using taxable accounts since I retired early. This will continue until I hit the RMD age. Then RMDs will exceed living expenses. Roths will likely never be touched. Will claim SS at 70. So between SS, small pension, and RMD, I am fine.
Use your Roths for major purchases (paying cash for a new car, a second home, etc.). This way you avoid selling from taxable accounts and driving up your taxable income.
I would withdraw from the tax deferred account first to fill up the 12% tax bracket every year, then the taxable account then the tax free account last if at all.
@@toddmaniatoddmania9844 Why not both? I am not a financial adviser, or a tax professional and this is not financial or tax advice. My experience is that maxing my 401k was one of the larger mistakes I made. Here's what I wish I had done; 1) invest up to the company match in my 401k 2) max out my roth 3) max out an HSA when I qualify. 4) Invest the rest in a standard brokerage account. (this assumes you are a buy and hold type of investor, and that you do NOT have a ROTH 401k available) Here's why; 1) The company match is worth the taxes you MIGHT have to pay. 2) ROTH is tax free at retirement, and can be used without penalties or taxes within limits before retirement. 3) You're gonna have health care expenses, and why not pay them tax free? 4) There is NO long term capital gains tax on your first $89,250 of GAINS PER YEAR (if you're married). This is MUCH better than a traditional 401k tax treatment. So, during retirement, I'd draw nearly 30k per year from my traditional 401k. This would be tax free because of standard exemptions. Then, I'd take out about 60k of GAINS from my brokerage account that would also be tax free. If needed, I'd pull additional money from my ROTH, and of course pay my medical with the HSA. This gives me a tax free income in excess of 100k per year if I've made good investments.
@@toddmaniatoddmania9844 Most 401K plans have a ROTH option. I max out my 401K contributions every year and it is all with after tax dollars going into ROTH account.
@@bryan_witha_whyy so, how do you increase your buffer without selling off your shares? Where dividends come even if the market is up or down. Also, if you plan right and buy those shares that have good dividend growth your money will grow over time. My 3 uncles worked blue-collar jobs. All retired rich with good blue chip stocks that paid good dividends. They lived off the dividends way into retirement.
Interesting, but the figures are so far above where I think we will be that it lost relevance and I started tuning out. Perhaps you could do one like this for the common worker.
Absolutely correct, but he is a certified financial planner, so generally the only people he deals with are people with money. I would venture to guess that he spends no time with someone that works at the local hardware store, who lives hand to mouth just hoping to reach full retirement to draw Social Security benefits that we are now hearing may be reduced by 20% to 30% beginning in 2033 because congress and the government is more interested in funding their war machine, and their pet projects than they are the livelihood and security of senior citizens that have paid into the system their entire working life.
You sound very knowledgeable and strategic and this seems like sound advice. You also seem out of touch in terms of being relatable. The “typical” family does not have $1M saved for retirement. The “average” retiree does not collect $4K per month. Try cutting those numbers in half, and then some.
He is knowledgeable and strategic. And this IS sound advice. Not out of touch at all - these are from the people he works with who have funds and need to understand how to use them. Anyone with much less does not have too be as concerned because their taxable situation is far less problematic. I find it to be highly honest, and he is sharing terrific info. Know your audience. And also, audience: know your speaker.
@@kelleydonovan770 he used imprecice language ... you don't get a "deduction" for tax deferred contributions as it is not counted as income in the first place
Subscribed 🙂 I've downloaded and played with the tool (so thanks for that) and compared it to the Fidelity retirement calculator I've used the past 5 years or so. The tax (and Roth conversion) information in this tool is non-existent in the Fidelity tool ( my guess is on purpose) but their income and expense details are so much more comprehensive allowing you to add or change particular items and amounts on a year by year basis. Looks like I'll be using both tools now until I find the 'one tool to rule them all' (haha, sorry about the poor dad joke). I've been early retired (55) coming up on two years and am still trying to navigate the nuances of budgeting and optimization until my wife retires around the end of the year. I've watched about 3 or 4 of your video's and realize you're definitely in the top 3 of the dozen or so I've watched or seen over the years. Keep up the great content.
I came across your channel through this video-case studies are incredibly valuable, and I'm eager to see more in the future! Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
Why defer SS till 70 years old? Doesn't make sense with median death age is 73.4 years for a male. What is the best prorate sequence of withdrawal if SS is taken at 62 years and not left on the table unused? All tax and retirement advisors have convinced themselves their clients will never die.
If the male is healthy, it probably makes sense to wait until 70. Basically insurance incase he lives longer than he expects, as many people do. Perhaps I'm more conservative with my money, but I'd rather have extra available incase I live longer, and if I die at 71, then another guy who lived until 91 can have it.
So half the men live longer than 73.4. With a solid number living way longer than 73.4. Assess based on your own situation, but median age of death is a very limited stat to make this decision on.
if you retire early you will need healthcare and the cap gains impact your aca magi income and hence your subsidy. fidelity offers a tax managed account the washes the gains out of the portfolio while tracking an index...helpful for income planning with regard to aca magi...healthcare cost is a huge factor when retiring early....
It is very complicated in retirement planning especially most of us aren't good in math. I am gonna try to the software you provide here and hope I can get some advice out of it. Thanks for sharing this tool.
The ACA is based on your gross income, so 🤦🏻♀️ I had to pay for it completely without subsidies. 🤷🏻♀️ What can you do? I decided I can afford it if I don’t buy anything except for groceries and decided to sell some stuff. So I went ahead and paid for it. Healthcare is too expensive to go without insurance.
$10k expenses per month? Whoa-- way too many expenses! Time to downsize. I don't think you are talking about regular people like myself. I'm a teacher and for sure I don't make that much.
@@foundryfinancial10k per month is not middle class, that is for certain. It amuses me that people like you think 10k per month is "average", coast or not.
Every time I lose or quit a full-time job, I always roll the money from the 401k to the appropriate brokerage account. I'm planning on pulling from tax-deferred first and only pulling when market conditions are good. The money would either go into a taxable brokerage account and/or a high-yield savings account to make safe interest. I would pull enough to cover 3 years worth of expenses. This should nearly eliminate sequence of returns risk (I hope). Then when that money runs out, I finally pull from the Roth.
@@cindyhenry1410Yes, if you withdraw before being eligible you are fined and taxed at existing rates. Rule of 55 can be used to withdraw earlier though, but it has catches. I think the original comment meant he was rolling over employer tax deferred accounts when he changed jobs.
You are missing out the fact that the dividends and interest from taxable account is taxable as regular income. That should be factored in while determining how much Roth conversion is possible.
I retired at 55 so I have access to my 403B without the 10# penalty. I take 50% from 403B and 50% from my brokerage account.. the last account I would touch is my Roth IRA
Here is the deal: I don't have a car. I don't have cable or any streaming services or subscriptions. I never eat out -- breakfast, lunch, or dinner. I don't drink anything but water --- ever. I don't gamble, smoke, or do any drugs. I don't go on vacations. No coffee or booze, as noted earlier. I don't use the internet to buy anything -- ever. Practice this and you can easily live off of about 20k a year -- not the 100k noted in the video. Practice this, and truly retire early or retire stress free. What I do: Library, outdoor exploring/hiking, Reading, Exercise, Cook, Love.
Not really explained why the order makes this difference, only that it does. In particular, the specific explanation of why Roth should be last is not a reason at all. The likely reason is that deferred accounts will have forced RMDs. I suspect that the speaker may not fully understand the reason too, which does not instill confidence at his advice.
Very informative. Thanks for sharing. After a month of learning, I'm glad that I am able to understand the relating threads. Managing personal finance is rewarding.
70yo ~ $2k/mo living expenses - excludes travel, car purchase/repair & similar major infrequent expenses. Always frugal, self-sufficient… bought old house, did (do) own repairs/renovation, not big on ‘trinkets’, etc. 20yo car.
@@gr8dvd you could go to Hawaii once a month, buy a new car a year, get a new furnace and AC system a year, a new roof every other year and still come up well short of 10k a month. Living in the SF east bay, my recurring monthly exp. are around 2.5k a month. I don't know what I'd do if I had a extra 7.5k a month to spend on, be nice though. Lol
The best thing to do is: retire with your pension, make sure that your house is paid off - along with the cars, go back and work in your field for fun money and nonessentials. Do not touch your TSA’s until 70. Never rely on social security- that is a bonus.
I love how much details are available nowadays for retirement planning and financial literacy in general. 13:45 is where my strategy would reside too. Taxable-Tax deferred and then Tax free accounts withdrawals. Love this detailed analysis!
Started working with the Right Capitol program, getting familiar with it by changing the inputs (as I dont know all the finance lingo). After several hours I have it matching fairly closely to my Excel workbook. Going to start working with adding Roth Conversions for the next two years and see what happens with my very low taxes..... It is a powerful tool, thanks for sharing.
@@foundryfinancial I clicked on the links but didn't get or see how to download the program. I did get an email, but no program. How do I get the program?
I'm pulling 401k pretax first at age 55 with IRS rule of 55 to reduce RMDs and to have taxable income for Obamacare subsidies. My RMD age is 75 years old. I don't ever plan to spend a dime out of my Roth IRA, that's for my kid's inheritance, and that dumb secure act with 10 years of forced withdrawals.
Awsome, life is too short to retire in the 60s if it can be avoided. Retired at 50 several years ago, was going to take social security at 62 but factoring in RMDs at 75, probably use pretax accounts and delay social security as well. The more I learn, the more I earn 😂
I'm doing the same thing in a year. Spending it down to near zero, then living off some cash and real estate after that. Then Roth IRA if necessary. But the Roth is an "in case SHTF" fund and inheritance/gifting.
I'm flabbergasted by the idea that you can pull 100k in capital gains out of a taxable account and not pay any tax on it if you have no earned income. Seriously? This seems impossible.
When I leave a job I have the 401K company rollover my 401k to a Traditional IRA. IMPORTANT I had NO CHECKS sent to me, it is the 401k company that sent the check to the brokerage company. I never saw or touched the money transfer for tax reasons. The 401k company charges yearly fees in addition to the mutual fund fees. Good brokerages only charge mutual fund fees. The company you worked for *MIGHT* have paid your 401k fees, but they probably won't pay after you leave the company. The only drawback is that I cannot be sued for any money in my 401k, but I can be sued for brokerage funds. So I don't do anything to get sued & have adequate Home Liability, Automobike and additional Umbrella Insurance.
Why wouldn't you draw from your IRA first and reduce that account and in turn reduce the RMD required when you hit 73, then use your taxable, RMD's and SS to fund your retirement. It seems like anything you can do to reduce your RMD's will help later in retirement. I'd like to see those numbers.
Everyone says that 401k is taxed like regular W2 income but you already paid FICA taxes so it’s not quite as bad as regular paychecks get taxed while working. Also, I may have missed it but you can have about $90k per year of long term capital gains as a couple before those are taxed. -update: you mentioned that at 12:27. 👍
The easy way to think about 401k taxes is just apply what your federal income tax bracket will be. If you are in the 12% bracket just deduct the standard deduction for single or married and tax the remaining amount you will withdraw from you 401k. Example: For 2023 standard deduction for single is $13,850 and $27,770 for married filing jointly. So assuming a $50k 401k withdrawal and filing jointly would be $50k - 27.7k, leaving $22.3k taxable. Now look up what tax bracket $22.3k falls under, which for 2023 is the 12% bracket. Tax would be $2,676 in 2023 on a $50k 401k withdrawal with no other tax deductions considered. So a withdrawal of $50k from your 401k in 2023 would net you $47,324 after federal taxes and no state income tax. Also, the current tax brackets and deductions are all set to sunset the end of 2025 and return to what they were previously. The only portion of the Trump tax cuts which will remain are the corporate/wealthy tax cut portions. For my example above that will mean the 12% bracket will be reverting to the 15% bracket with far less standard deductions and other deductions available. Or to put it simply, unless Congress extends the current tax laws taxes will be rising for individuals starting in 2026.
Regarding the frequent discussion on at what age should you start taking social security, how do you take the more likely future reduction in payments resulting from no longer having a surplus in reserve, into a presentation format? As a recently retired accountant, I took this into account in my analysis and it changed the logical choice. Results will be impacted by what year, how much will the reduction be, and what possible regulation legislation will become the final rule.
Current plan is to delay SS until 70 (longevity genes) and draw down/Roth convert from pretax from age 66 to 72, to reduce RMDs. Currently don't have any post tax $ beyond some operating cash for the next 6 months spending, but plan to sell a house soon. After RMD starts, plan to use Roth and brokerage whenever spending needs or wants go above what's prudent where tax brackets and IRMAA are concerned.
Question: It looks like these examples empty one bucket at a time completely... If 401k growth withdrawals count as ordinary income, rather than capital gains, wouldn't you start each year withdrawing from that until you get to the higher tax bracket (currently a jump from 12-22%), then withdraw what you need for the rest of the year from your tax free account? And if it's ordinary income, rather than capital gains, which account are you starting with at that 0% rate (which appears to be on the long-term capital gains schedule)?
Hi Kevin @foundryfinancial I appreciate your content. I teach Personal Finance at the Bauer College of Business at University of Houston and was hoping to get your permission to use your videos in my course. I have been teaching since 2012 and one of my favorite lessons is the 3 Bucket Strategy, its really just and introduction to Tax-Advantaged Investing. Your video goes deeper than mine and I wanted to share your videos with my advanced students and also those who are now well into their careers. keep up the great work, my friend!
Maybe I heard wrong, but around 7:10, I thought it was mentioned that if you put $20k into a 401k or 403b, it reduces your taxes by $20k. I believe it was meant to say that if you earn $70K a year, and you put $20K into your 401k or 403b, that your federal taxable wages are reduced by $20K and the fed taxes are calculated on the $50K. FICA I don't believe is affected by this. I could be wrong on what I heard.
Hi Kevin. Love your videos and definitely need some help. Are you actually taking new clients, or are you handing off your client leads to "an elite advisors whom you've trained personally"? I'm very interested in working with you. Unfortunately I am not at all interested in working with a Lum protege. Thanks!
Dont wait to reduce your traditional IRA, convert or get the IRA lower before your get old. There are old age traps in a traditional IRA you cant afford.
I think the retirement crisis will get even worse. A lot of people can’t save because of low paying jobs, inflation, and insane rental rates. And now that home ownership is out of reach for middle class Americans, they won’t have a house to retire with either.
Thank you for a great video with the couple's examples. Of course, everyone situation is different, but this gives enough information to build a better financial future. I will be checking out your other videos to get a full understanding of getting ready for the dreaded RMDs . I will start with your software tool and see where I stand and work the process.
Something else to consider is inherited IRAs. Obviously not many people have them, but it can ruin a good plan, especially if you’re not Medicare age and using ACA.
Just a slight correction... Putting 20K into a 401K doesn't reduce taxes by 20K it reduces your taxable income by 20K (6:57). You probably meant this, but it didn't come out that way.
When retired, I won't be pulling $100,000 a year out of my 401 and get taxed 30%. Most people would be broke in 2 years or less. I'm in a 30% tax bracket while working and I will be in a 12% + or - tax bracket while retired. So to me, a 401, tax deferred and matched, is the best route.
I don't have a gap. I only spend 30% of my fixed income and invest 70% but I also get interest income from bank CDs and RMDs that I use QCDs to negate.. I don't pay taxes Fed, State, and Property Taxes. I use my negative gap to make Roth conversions so I'm rapidly knocking the RMDs down. Over the next 5 years, my QCDs will be about the same as I give to charity anyway and I' will about halved my rollover IRA. After 5 years, I'll recalculate. The only downside is I have to do my taxes for 2024 as an estimate to manage my future tax liability (recheck Dec1) and also file my taxes for 2023 too. I do my own taxes.
I just saw sone other video showing breakeven period for starting social security benefit at age 62 vs age 70 . The breakeven age was 79 years. This surprises me that after age 80 you won’t be able to spend money with your health even if you have lot of money. With the crazy inflation, the breakeven period will even get pushed back. Considering average life expectancy of 83-84 years, it doesn’t make sense to push back social security benefit past age 65.
This is often the case. Most people don’t calculate break even which is a real mistake - I was an accounting professor and covered the importance of break even in my managerial accounting course. I think people get so worried that they will live beyond the average life expectancy, they get scared into delaying withdraw. I did a break even analysis for my pension plan and I would have to live to 90 before break even. It made it a no brainer to start taking it at 55.
Thanks for the great videos and letting me see how you're able to model Roth Conversions with Right Capital. Fidelity shows you RMDs but as far as I know, doesn't allow you to see the impact of changing your withdrawal method or see the impact of Roth conversions. I really like the tool but the "Edit" button on the Calibration screen is missing so we can't modify the conversion period. When I try it now, it has conversion starting now while I'm still working and honestly, the taxable income is too high for me to be able to cover that much additional conversion tax. Can that option be enabled? I.e. to set conversion start and stop ages? Also, should we be withdrawing from Taxable account balance to cover the Roth conversion tax? Thanks again!
Please note. If you can't swim, try not to dive into the deep end. To retire, you better either have a pension with SS or $500,000 in savings. To retire, you can't have a mortgage, a car note, or a big credit card bill! Oh, medical insurance is a must!
It actually depends on your retirement income and investments. A mortgage or a car note in retirement is no different than at any time in one's life. If those fit within your budget no issue. A big credit card balance is a NO NO at any time.
@jerrylundegaard2592 NO, it is not the same. First, working a regular decent job, you could look forward to a raise. Next, if you don't like the job, you go to another one. In retirement, seldom do you see a decent raise. Also, if you want to quit retirement, it doesn't usually work unless you die.
@@johncipolletti5611 You MISS the point. Reading comprehension difficult? I did not suggest everyone who is retired is able to have a mortgage, a car note or a credit card balance. I said it depends on the retirees income, investments and expenses. As with most things, it depends. Seriously, if a retiree has a good retirement income, investments and manageable expenses why would they want to quit retirement or find a job?
@@johncipolletti5611 Does not change the fact you MISSED the point. And we all know "advance degrees" mean nothing when it come to intelligence or common sense.
Getting ready to retire with only taxes on my home insurance on my cars and electric bill and phone bill. I don’t understand these examples of 10k expenses a month
I think it would be easier if the government didn't tax investments, they can tax our paychecks, but I would prefer they don't touch our personal investment.
Your investment isn't taxed (if you paid tax prior to investment). The earnings on your investments are taxed. If these were not taxed, you'd be taxed in some other way, so be careful what you wish for. (But of course, I still wish for it too 😊)
@@chrys.w.8022 More importantly Social Security should not the taxed. The levels when taxes kick in have not increased with inflation for decades. It's a stealth tax.
Explain how something compounds without paying a dividend. People throw that term around like it's so easy to do. If I but a stock at 10$ and let it grow how will it compound without just it's growth and any additional buys I might do? I know the concept for example 10% growth of 10$ is $1 so now you get 10% of $11 and so on and it grows. But no one can show me real world examples of buying a stock and showing how it will compound. Thank you
The example you gave of paying zero tax on your taxable accounts, up to 100k for a married couple...Does that apply to any certain age? In other words would that apply if they pulled their money at age 57?
Pretty good video. You buried the lead a few times from my perspective. I.e. they did a Roth conversion? Did they turn the Roth into wine? What is a Roth conversion? I will look it up
You don’t have zero income in the years prior to social security when you retire. The interest and dividend from taxable accounts are taxed as ordinary income even if you do not withdraw a single cent. If you have a reasonably large amount in taxable accounts, that results in a substantial income making any ROTH conversions at the 22% tax rates. This is definitely the case if you are single.
At around minute 12:45, in reality the tax brackets are adjusted yearly which allows retirees to take higher distributions without moving to a higher tax bracket. For example, a couple in 2023 filing jointly can withdraw up to $89,450 in taxable income (401k for example) and remain in the 12% tax rate whereas in 2024 they can take up to $94,300 (almost a 6% increase). I guess if I were retired today, I would strategically give myself and spouse a raise up to the IRS adjusted bracket only to avoid moving to the third tax bracket- 22%!
He said " if you put $20,000 in your 401k this year you'll be able to take $20,000 off your taxes". Wrong, or at least he misspoke- it reduces your taxable income by $20,000 - not your tax.
Aren’t Capital Gains tax free if you are under the minimum income limit for the 15% capital gains tax bracket? If true this would favor pulling from your stocks first and let your trad and Roth IRAs cook until you need them.
I think there was a big SS income clarification needed. If Phil has filed SS he would get $3200 per month, his wife would only get $1,600 not her $2,800. Unless she files before Phil. She might want to file at 62 since her reduced income would be greater than $1,600. When Phil files her amount would be reduce to half of his $3200.
I don't understand why you want to pull from taxable before tax-deferred. If my taxable investments are low-dividend and/or qualified-dividend paying, withdrawals will be at LTCG rates, and some could even be tax-free (interest from in-state muni bonds), whereas all withdrawals from tax-deferred accounts will be at ordinary income rates. Withdrawing from tax-deferred first will preserve the lower-tax investments for as long as possible and reduce the impact of RMDs later. So at the moment I'm thinking of using taxable for low-dividend growth investing and muni bond investments and withdrawing in the following order: dividends and interest from taxable investments, tax-deferred investments, capital from taxable investments, and last tax-free investments. Some taxable money could also be used to fund Roth conversions.
Just depends on your long term goals and goals. Often your strategy is exactly right. Honestly, in this video I just wanted to show people the impact of getting this right and give them a tool to model it. This is why online calculators and one size fit all proclamations never work. And honestly, why I still have a job. Some clients will touch almost none of their taxable or their tax-feee accounts
I'm 62 and retired. I'm pulling $100,000 from my taxable account in 2024. My capital gain will be about $18,000 and taxed at 0% federal. I'm also doing a $29,000 401K to Roth rollover, which will be taxed at 10.6% federal. If I withdrew the $100,000 from my 401K, I'd be taxed at 22% federal, which is $22,000. I'm getting $100,000 from my taxable account for $0. Starting in 2024, my plan is to never be in the 22%/25% tax brackets again. I'll complete my 401K to Roth conversions by 12/31/25, as I'm assuming tax rates will increase on 1/1/26. Withdrawing $100,000 for my living expenses from my taxable account, was optimal for me. I've been doing Roth conversions since 2015, thus, I've already got my 401K balance reduced quite a bit. Completing my Roth conversions is my highest priority, as my tax rate avoided on Roth withdrawals will be 45% (Federal, State, IRMAA & NIIT). Withdrawing the $100,000 from my 401K would have increased my adjusted gross income by $100,000, while withdrawing $100,000 from my taxable account only increased my adjusted gross income by $18,000. I would have been UNABLE to do a 2024 Roth conversion, had I withdrew the $100,000 from my 401K. Nothing beats a Roth IRA, filled with low cost index stock funds. The key feature of my ability to do Roth conversions, at an average 13.2% tax rate was receiving some cash, via inheritance and a cash-out refinanced mortgage.
While I agree that using the funds from a taxable, investment account first is a good strategy, what about RMD's? Should I start taking distributions from my IRA/401k to reduce the balance before I am required to take distributions?
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What is your strategy for deciding what account to pull from?
Hey Kevin If I have 2 million in my Trust account at RBC can I withdraw around 100 K a year since at my age 70 i have around another 15 or some more years since life expectancy is 85?
That doesn’t account for inflation. And also expected life expectancy and actual life expectancy aren’t always the same.
May I ask where that calculator is?
I retired last June. I have a Rollover IRA, a Roth IRA and a taxable brokerage account. I've been living off of my taxable brokerage account, which I expect to do until I collect Social Security. I'm also doing Roth conversions this year, filling up the 10% and 12% tax brackets. I've done about $30,000 in conversions so far this year and will wait to see what room I might have left at the end of the year. I'd like to avoid pushing my LTCG into the 15% bracket. We shall see.
Moving to a cheaper country. Will live off cash for 4 yrs. Then we'll get social security and pull from taxable account first
Thanks, Kevin, for covering this information & especially for making your software available. I’m a retired MD,but know *nothing* about making good decisions regarding retirement. I will spend the remainder of the weekend viewing & learning from your videos & software. I was a pediatrician, the lowest paid MD, so my portfolio is quite modest. Consequently, I need all the help I can get! Thanks for educating this OG.
I have wondered for many years, why it is that the American education system hasn't or doesn't teach finances, especially, early on (elementary school) and continued throughout HS. This is great info and if I may add, a great read is the (any) story about Alexander Hamilton and his story relating to treasury/financial system. An eye opener!
I ended up homeschooling..life skills, which includes learning to delay gratification and saving and simple finance, cooking..are important skills to learn..
If school won't teach it, parents need to
Perfect topic. I'm 3 years in retirement @57, did a good job in the accumulation phase with net worth of $3M+. The problem is I haven't spent any of it despite knowing I have no concerns of running out of money. Some minimalist traits that helped me save are not easily cast aside. I sense I'll be dead and gone with plenty of money left behind, but that was never a goal.
I have a feeling I’m going to be in your boat too. I’m 52 and have $3mil socked away. I hope to retire as soon as next year. But I’ve been in a frugal savings mindset my whole life. That transition without feeling anxiety is going to be tough.
The ROTH is the last thing you should draw from in my opinion. The money you take out is tax free, yes, BUT once it is out of the account it can no longer be returned, and that money was _earning_ money (presumably) which would have been tax free.
If you have an insurance gap and are affordable care act you can need tax free income. Otherwise you loose your subsidies.
You can withdraw just the dividends from your Roth also you ever read the book “die with zero”
@@Dividendsmattertoo Or, you can reinvest the dividends within the ROTH and the profits that result will also be tax free. Once dividends are taken out, though what is taken out CAN be reinvested outside the ROTH, the proceeds will be taxable. If one absolutely needs the dividends then by all means take it, but if not keeping it in is a no-brainer.
Yes the proceeds can be taxable if you take out your gains but if you only take out your contributions then they are tax free
We opted to draw from our regular investment account first. We retired at 62 and were relying on ACA provisions for health insurance. By using our regular investment account it kept our Modified Adjusted Gross Income (MAGI) low. As a result our health insurance was highly subsidized and we had zero taxes. We figure we avoided close to $10k a year in health insurance and tax expenses for 3 years. We started income streams at age 65 in conjunction with Medicare coverage. We also made Roth conversions up to bracket creep starting at age 65 and will continue to do so until RMD age. These are the only transactions we've conducted with our IRAs.
There sems to be a focus here on minimizing the taxes rather than maximizing the after- tax wealth. The latter is to be preferred. It becomes rather complicated when considering the fact that wealth is inheritable and for some accounts you must consider your life expectancy and the tax rates of those inheriting your wealth.
He does mention the tax adjusted ending portfolio a few times in passing.
Minimizing taxes is what I need to do and why I watched this.
What you don't spend in taxes is re-invested and compounded thus "maximizing the after-tax wealth".
A friend died last month at 64 and collected $0 from retirement and SSN. Never retired. Always seems questionable to miss out on 10 years SSN as you bet you’ll live to 70. My wife died at 50. Neither of my parents lived past 65. We don’t all live forever.
I understand there’s math involved but seems that using SSN earlier uses “other people’s money” such as the governments payments to you v drawing down more of you so called own money in your retirement accounts. Though it’s clear it’s not “your money” because unless you spend it all you never use what you saved all your life - it’s for your heirs then.
I thought about how to reply to your comment, but couldn’t figure out how to say in a brief way. So, I’ll leave you with some of my own thoughts/experiences and hope that all who read them will balance what is in their best interests. I to had a friend who passed away a year before retirement and never got to see a penny. I also lost my high school sweetheart, who was killed at 16 years old and before she could save a penny. I also had a grandmother who lived to 101. So, I guess as is good prudence with many things. Hope for the best, plan for the worst. Or; live for today, but not at the expense of tomorrow. Best wishes.
I agree. I know it is better to wait until 70 but I’m gonna take SS the moment I can because we don’t know when this ride ends
Family history says I most likely won't live long enough to collect SS. I'm going to get every cent I can while I can.
I’m from a family without longevity also. I’m collecting as soon as I am eligible and spending the rest of my life with my grandchildren.
I agree on this. Social Security is use it or loose it. If you wait and don't take it you aren't going to be leaving it to someone to inherit like other payment sources. There is a break even age and other assets will continue to grow if you are taking and using Social Security instead of drawing from them.
Investing has been rather rewarding to me and I've learned that getting a good return is very much attainable if you know your way around it. Do not let anyone tell you it’s impossible.
Luck is way off the picture. Jonas Herman, a licensed fiduciary is the brain behind my success. I've gotten into a plethora of assets with $21k spread across stocks (options and futures) for the short term and Roth IRA, index funds, cryptocurrency and ETFs, for the long term. Now with over 91k in roi, I sit back and just reinvest at intervals while I handle my other businesses.
Is he taking new clients? I'll be 56 soon I hope it's not too late. This whole stuff is just too complicated for me. I don't mind using some help.
Hermanw jonas that’s his gmail okay
Thank you for this lead. I mailed him. Did my due diligence on him before we scheduled a chat. Also, brilliant resume I must say! I intend on getting started right away.
@@Sithembile499 , find someone else. This guy is not providing anything. He’s a fast talker trying to get your financial information. RUN AWAY.
I think you missed the boat on someone who retires early. I retired at 61 1/2. I have 3 1/2 yrs until i can go on medicare. Healthcare is the number 1 thing i will not skimp on. Going through the ACA plans, the subsidies are tied to your gross income, this also includes your spouse. In order to get a decent policy under $500/month we had to cap our income at 40 grand. That means no roth conversions, no ira withdrawls. I planned this a few years ahead and stock piled enough cash to pay bills for 3 1/2 years.
So, sometimes one does not really have a choice. Btw, the policy without subsidies was $1325/month.
I also waited to retire until my wife hit 65 and went on medicare. She has a cancer history which is a whole other ball of wax.
My spouse and I decided to retire at 62. We knew we would incur an income monthly loss of $1000. We also knew we had to bridge our health insurance for 3 years. The ACA ( Obama Care) came to the rescue and so did Trump ( bless his heart). We had IRA's totally $600,000. Are income at retirement decreased from $110,000 to $45,000. We were not married at the time we retired. The ACA premium is based on individual income. Our premiums for the ACA was $75 monthly for me and $50 monthly for my partner. Then Trump was elected and his first act was eliminating the tax subsidy. By doing so, another subsidy kicked in..resulting in my premium falling to $50 monthly and my partner's to $25. Total coverage with a max out of pocket of $1700. Bless Trump's little heart. Lol
Anyway ..65 arrived ..partner and I celebrated our 25th anniversary by joining hands in marriage. We were met with Medicare..after contributing to Medicare since age of 18..Medicare premium was $165 monthly plus another $35 monthly for supplemental coverage. And out of pocket cost soared to $4000. EACH.
Long story short..our $600,000 is invested in a 6% government agency bond (.not callable for 6 months) we have always lived within our means. Home is mortgage free and any credit card debt to choose to carry is always with a zero interest card. .
We will have to begin RMD at age 72. The withdraw will simply be transferred to our joint non IRA account. One thing I noticed...when we withdrew $15 000 to cover cost of a new home ..our tax return for that year was zero..for both state and fed.
I truly hope your wife remains in remission and you both have many blissful years enjoying your hard earned retirement
@johnemanuele8695 At least you weren't forced to take a covid vaccine like I had to or lose your job under Biden (bless his new world order heart) remember they told you the vaccine will keep you from spreading covid and getting sick? Shut the economy down too. At least Trump (bless his 2nd term president November heart) let me dip into my 401k up to 100k.
@@johnemanuele8695 Trump is heartless. Get a clue
@@johnemanuele8695Uh, pretty sure Biden, bless his heart, raised the RMD age to 75. And Trump AND the Republicans tried to do away with Obamacare completely, except for the courage of John McCain, bless his heart! Now, if Project 2025 is allowed to be implemented, Trump elected that is, the Project 2025 stated goals is to do away with Medicare all together, and cut Social Security. Be careful what you wish for.
I have dreamed of making more than $200,000 in income all my life and would not care getting hit with high tax rate but that dream never comes true, now that I have a chance in retirement to make that dream comes true without even working that is already a pretty good deal. I will just sleep through this tax issues and enjoy life then when I have time and I may do something about it with the information provided here, thank you Kevin
Dad made sure to position things such that he got less in his lifetime but left mom in a position of getting more of social. She out lived him by almost 21 years. It’s not me I’m worried about, it’s my fiancée. So will make sure I can get by until she gets a better benefit.
What's your salary and what's hers. How much debt does she bring into the marriage.
We pull from tax deferred accounts until we hit the spot where the 2nd level of IRRMA kicks in and then we pull the rest from ROTHs since that extra 4% the 2nd level of IRRMA cost essentially gives us 4% more on the ROTH. Not pulling a lot from the ROTH, but some.
Been using taxable accounts since I retired early. This will continue until I hit the RMD age. Then RMDs will exceed living expenses. Roths will likely never be touched. Will claim SS at 70. So between SS, small pension, and RMD, I am fine.
Knowing that your RMD will far exceed your living expenses seems like a reason to convert more before you need to take the RMDs
Use your Roths for major purchases (paying cash for a new car, a second home, etc.). This way you avoid selling from taxable accounts and driving up your taxable income.
I would withdraw from the tax deferred account first to fill up the 12% tax bracket every year, then the taxable account then the tax free account last if at all.
You are fortunate to already know at what age you will pass away and plan accordingly...Most people don't know.
Don't matter I have all tax free funds no taxes fir me forever starting next year feels so good
Congrats!
So ?
This is why I’m focused on maximizing my ROTH accounts over a 401k.
True, but some people want the company match. It’s free money.
@@toddmaniatoddmania9844 Why not both?
I am not a financial adviser, or a tax professional and this is not financial or tax advice. My experience is that maxing my 401k was one of the larger mistakes I made. Here's what I wish I had done;
1) invest up to the company match in my 401k
2) max out my roth
3) max out an HSA when I qualify.
4) Invest the rest in a standard brokerage account. (this assumes you are a buy and hold type of investor, and that you do NOT have a ROTH 401k available)
Here's why;
1) The company match is worth the taxes you MIGHT have to pay.
2) ROTH is tax free at retirement, and can be used without penalties or taxes within limits before retirement.
3) You're gonna have health care expenses, and why not pay them tax free?
4) There is NO long term capital gains tax on your first $89,250 of GAINS PER YEAR (if you're married). This is MUCH better than a traditional 401k tax treatment.
So, during retirement, I'd draw nearly 30k per year from my traditional 401k. This would be tax free because of standard exemptions. Then, I'd take out about 60k of GAINS from my brokerage account that would also be tax free. If needed, I'd pull additional money from my ROTH, and of course pay my medical with the HSA. This gives me a tax free income in excess of 100k per year if I've made good investments.
@@toddmaniatoddmania9844 Most 401K plans have a ROTH option. I max out my 401K contributions every year and it is all with after tax dollars going into ROTH account.
some companies match pre or post tax deposits. I didn’t know that my company did, I could have switched to Roth much sooner
This is invaluable info! Hope you do hourly consults. This is the missing piece to our retirement plan, along with protentional ROTH conversion.
The hole I see is if you don't keep a rainy day fund when you need it then you may be pulling funds out at a loss when the market is down.
Of course, this one video is not meant to be a financial plan.
The short way to reference the scenario you described is “sequence of returns risk”.
It’s too easy. At all time highs increase your cash buffer to the point it’ll see you through without withdrawals.
@@bryan_witha_whyy so, how do you increase your buffer without selling off your shares? Where dividends come even if the market is up or down. Also, if you plan right and buy those shares that have good dividend growth your money will grow over time. My 3 uncles worked blue-collar jobs. All retired rich with good blue chip stocks that paid good dividends. They lived off the dividends way into retirement.
Interesting, but the figures are so far above where I think we will be that it lost relevance and I started tuning out. Perhaps you could do one like this for the common worker.
Same!
Agree, I turn off when this couple came in, their bank account get me all confused.
When he said the “typical family”!!! has 1.2 million………funny
Absolutely correct, but he is a certified financial planner, so generally the only people he deals with are people with money. I would venture to guess that he spends no time with someone that works at the local hardware store, who lives hand to mouth just hoping to reach full retirement to draw Social Security benefits that we are now hearing may be reduced by 20% to 30% beginning in 2033 because congress and the government is more interested in funding their war machine, and their pet projects than they are the livelihood and security of senior citizens that have paid into the system their entire working life.
You sound very knowledgeable and strategic and this seems like sound advice. You also seem out of touch in terms of being relatable. The “typical” family does not have $1M saved for retirement. The “average” retiree does not collect $4K per month. Try cutting those numbers in half, and then some.
He is knowledgeable and strategic. And this IS sound advice. Not out of touch at all - these are from the people he works with who have funds and need to understand how to use them. Anyone with much less does not have too be as concerned because their taxable situation is far less problematic. I find it to be highly honest, and he is sharing terrific info. Know your audience. And also, audience: know your speaker.
@@kelleydonovan770
he used imprecice language ... you don't get a "deduction" for tax deferred contributions as it is not counted as income in the first place
This was amazing, very informative on such an important topic. Thank you Kevin!
Subscribed 🙂 I've downloaded and played with the tool (so thanks for that) and compared it to the Fidelity retirement calculator I've used the past 5 years or so. The tax (and Roth conversion) information in this tool is non-existent in the Fidelity tool ( my guess is on purpose) but their income and expense details are so much more comprehensive allowing you to add or change particular items and amounts on a year by year basis. Looks like I'll be using both tools now until I find the 'one tool to rule them all' (haha, sorry about the poor dad joke). I've been early retired (55) coming up on two years and am still trying to navigate the nuances of budgeting and optimization until my wife retires around the end of the year. I've watched about 3 or 4 of your video's and realize you're definitely in the top 3 of the dozen or so I've watched or seen over the years. Keep up the great content.
How long did you have access to the tool? I was logged in yesterday, but won't let me log in today.
@@MrRiedemanJACC Saw your note so I just tried to log in... I'm in, no issues. Must be something on your end.
@@azwileetoyote thanks for letting me know!!
Can you share a link to the tool? I don't see it posted in the video description! Thanks!
I came across your channel through this video-case studies are incredibly valuable, and I'm eager to see more in the future! Building wealth involves establishing routines, like consistently setting aside funds at regular intervals for smart investments.
Why defer SS till 70 years old? Doesn't make sense with median death age is 73.4 years for a male. What is the best prorate sequence of withdrawal if SS is taken at 62 years and not left on the table unused? All tax and retirement advisors have convinced themselves their clients will never die.
If the male is healthy, it probably makes sense to wait until 70. Basically insurance incase he lives longer than he expects, as many people do.
Perhaps I'm more conservative with my money, but I'd rather have extra available incase I live longer, and if I die at 71, then another guy who lived until 91 can have it.
No one's telling you to defer SS until 70 if you think you'll die early. Do what you feel is best, as will we all.
@@BrittMFH All the youtube "financial experts" reproducing each others content for their channels are doing it.
So half the men live longer than 73.4. With a solid number living way longer than 73.4. Assess based on your own situation, but median age of death is a very limited stat to make this decision on.
@@wmarian5027 thanks Braniac🫡
if you retire early you will need healthcare and the cap gains impact your aca magi income and hence your subsidy. fidelity offers a tax managed account the washes the gains out of the portfolio while tracking an index...helpful for income planning with regard to aca magi...healthcare cost is a huge factor when retiring early....
It’s called direct indexing. Lots of companies now offer it. And you’re right about healthcare costs being expensive.
I target and track my income in order to get the subsidy. Little extra planning but not too much.
It is very complicated in retirement planning especially most of us aren't good in math. I am gonna try to the software you provide here and hope I can get some advice out of it. Thanks for sharing this tool.
The ACA is based on your gross income, so 🤦🏻♀️ I had to pay for it completely without subsidies. 🤷🏻♀️ What can you do?
I decided I can afford it if I don’t buy anything except for groceries and decided to sell some stuff. So I went ahead and paid for it. Healthcare is too expensive to go without insurance.
$10k expenses per month? Whoa-- way too many expenses! Time to downsize. I don't think you are talking about regular people like myself. I'm a teacher and for sure I don't make that much.
Clearly you don’t live on the coast. :)
2 grand a month for the wife and I. House and cars all paid for..retire in 3 years, can’t wait. Good luck all.
10k a month must mean you still have your kids living with you. Where are the numbers for regular folk?
@@foundryfinancial10k per month is not middle class, that is for certain. It amuses me that people like you think 10k per month is "average", coast or not.
@@absurdnerd7624💯
Every time I lose or quit a full-time job, I always roll the money from the 401k to the appropriate brokerage account. I'm planning on pulling from tax-deferred first and only pulling when market conditions are good. The money would either go into a taxable brokerage account and/or a high-yield savings account to make safe interest. I would pull enough to cover 3 years worth of expenses. This should nearly eliminate sequence of returns risk (I hope). Then when that money runs out, I finally pull from the Roth.
You roll it over to an Ira? Or do you mean withdraw and pay tax and then but in brokerage acct?
Don’t you pay IRS 10% penalty if you withdraw from a qualified (tax deferred) acct before age 59 & 1/2??
@@cindyhenry1410Yes, if you withdraw before being eligible you are fined and taxed at existing rates. Rule of 55 can be used to withdraw earlier though, but it has catches.
I think the original comment meant he was rolling over employer tax deferred accounts when he changed jobs.
You are missing out the fact that the dividends and interest from taxable account is taxable as regular income. That should be factored in while determining how much Roth conversion is possible.
My plan is Pension at 62 while continuing to work, social security at 65, stop working and lastly my 401k.
Great retirement content, This is the precise guidance I've been searching for; the last piece of the puzzle for me. Thanks!
Honestly, this just scratches the surface - lots of variables. But, it helps you start down the right rabbit hole!
I retired at 55 so I have access to my 403B without the 10# penalty. I take 50% from 403B and 50% from my brokerage account.. the last account I would touch is my Roth IRA
The rule of 55 always any one to retire and pull from their 401k without penalty
Here is the deal: I don't have a car. I don't have cable or any streaming services or subscriptions. I never eat out -- breakfast, lunch, or dinner. I don't drink anything but water --- ever. I don't gamble, smoke, or do any drugs. I don't go on vacations. No coffee or booze, as noted earlier. I don't use the internet to buy anything -- ever. Practice this and you can easily live off of about 20k a year -- not the 100k noted in the video. Practice this, and truly retire early or retire stress free. What I do: Library, outdoor exploring/hiking, Reading, Exercise, Cook, Love.
No coffee?! That sounds terrible. :) I’m glad you’ve found a life that works for you.
Bravo! 👍
Matt you are a frugal genius! So highly focused and so much discipline. I admire that quality a lot.
Thank you, Freedom. The less you have, the more you appreciate.@@freedomtowander
Awesome. I would add a vacation or two and some to go food.
Not really explained why the order makes this difference, only that it does.
In particular, the specific explanation of why Roth should be last is not a reason at all. The likely reason is that deferred accounts will have forced RMDs.
I suspect that the speaker may not fully understand the reason too, which does not instill confidence at his advice.
Very informative. Thanks for sharing. After a month of learning, I'm glad that I am able to understand the relating threads. Managing personal finance is rewarding.
Who here is over 60 years old and has 10k in monthly payments? Be curious to know, i must live ultra ultra frugally!!
I'm not in "ultra frugality" but my monthly needs are about half of that.
70yo ~ $2k/mo living expenses - excludes travel, car purchase/repair & similar major infrequent expenses. Always frugal, self-sufficient… bought old house, did (do) own repairs/renovation, not big on ‘trinkets’, etc. 20yo car.
I figured that had something to do with what they made a year and living in California.
@@gr8dvd you could go to Hawaii once a month, buy a new car a year, get a new furnace and AC system a year, a new roof every other year and still come up well short of 10k a month.
Living in the SF east bay, my recurring monthly exp. are around 2.5k a month.
I don't know what I'd do if I had a extra 7.5k a month to spend on, be nice though. Lol
Just turned 60, travel a LOT but still don't spend $10k a month unless we are doing home renovations...
This was a really helpful and clear lesson on tax strategy and withdrawal order. Thanks!
The best thing to do is: retire with your pension, make sure that your house is paid off - along with the cars, go back and work in your field for fun money and nonessentials. Do not touch your TSA’s until 70. Never rely on social security- that is a bonus.
One more thing is the impact of changing tax rates. It’s unlikely to impact your approach as taxes will almost certainly increase in the future.
FERS Pension, Social Security, part time work and been stacking Bitcoin
When did you buy your first Bitcoin?
@foundryfinancial started 4 years ago stacking on a pension so slow going. Now with ETFs every one can participate.
@@williamwatson6676it will make it much easier. Also, the Blackrock ETF is very economical.
@foundryfinancial I'm a Fidelity guy. (FBTC) They been in digital assets awhile and only ones doing their own custody so I feel bit better about that.
This is very helpful for us. Thank you so much.
I have pension here pays all my bills. When I turn 62 I will start getting my SSA. I have Tricare, Dental and Vision.
I love how much details are available nowadays for retirement planning and financial literacy in general. 13:45 is where my strategy would reside too. Taxable-Tax deferred and then Tax free accounts withdrawals. Love this detailed analysis!
Started working with the Right Capitol program, getting familiar with it by changing the inputs (as I dont know all the finance lingo). After several hours I have it matching fairly closely to my Excel workbook. Going to start working with adding Roth Conversions for the next two years and see what happens with my very low taxes..... It is a powerful tool, thanks for sharing.
Of course. Glad it was helpful
@@foundryfinancial I clicked on the links but didn't get or see how to download the program. I did get an email, but no program. How do I get the program?
Great, so this videos is for people with over a Million in savings and investments.... I must be one of the very few that fall below that....
🙀
I'm pulling 401k pretax first at age 55 with IRS rule of 55 to reduce RMDs and to have taxable income for Obamacare subsidies. My RMD age is 75 years old. I don't ever plan to spend a dime out of my Roth IRA, that's for my kid's inheritance, and that dumb secure act with 10 years of forced withdrawals.
Awsome, life is too short to retire in the 60s if it can be avoided.
Retired at 50 several years ago, was going to take social security at 62 but factoring in RMDs at 75, probably use pretax accounts and delay social security as well.
The more I learn, the more I earn 😂
I'm doing the same thing in a year. Spending it down to near zero, then living off some cash and real estate after that. Then Roth IRA if necessary. But the Roth is an "in case SHTF" fund and inheritance/gifting.
Roth IRA goes to heirs tax free....their are no RMDs on it.....
I'm not gifting anything unless I happen to have anything left.
@@cindyhenry1410 Secure Act requires RMDs for inherited Roths.
I'm flabbergasted by the idea that you can pull 100k in capital gains out of a taxable account and not pay any tax on it if you have no earned income. Seriously? This seems impossible.
It’s $47k for a single and $97k for joint.
100% agree in the flabbergastation. WTH? Why doesn’t anyone talk about this? More details please!!
When I leave a job I have the 401K company rollover my 401k to a Traditional IRA. IMPORTANT I had NO CHECKS sent to me, it is the 401k company that sent the check to the brokerage company. I never saw or touched the money transfer for tax reasons.
The 401k company charges yearly fees in addition to the mutual fund fees. Good brokerages only charge mutual fund fees.
The company you worked for *MIGHT* have paid your 401k fees, but they probably won't pay after you leave the company.
The only drawback is that I cannot be sued for any money in my 401k, but I can be sued for brokerage funds. So I don't do anything to get sued & have adequate Home Liability, Automobike and additional Umbrella Insurance.
Why wouldn't you draw from your IRA first and reduce that account and in turn reduce the RMD required when you hit 73, then use your taxable, RMD's and SS to fund your retirement. It seems like anything you can do to reduce your RMD's will help later in retirement. I'd like to see those numbers.
What is RMD?
@@rhondaodden4286 Required Minimum Distribution that begins at 73 or later.
If you can stay in a lower tax bracket, then you have the correct strategy.
@@tncoltsfan what is RMD?
@@rhondaodden4286 required minimum distribution
Everyone says that 401k is taxed like regular W2 income but you already paid FICA taxes so it’s not quite as bad as regular paychecks get taxed while working. Also, I may have missed it but you can have about $90k per year of long term capital gains as a couple before those are taxed. -update: you mentioned that at 12:27. 👍
I have a whole video on it. ruclips.net/video/ypmGuZ0g4q4/видео.htmlsi=ZHpRIrehiPHMWgoD
You are also no longer paying Medicare funds as you would in a paycheck....
The easy way to think about 401k taxes is just apply what your federal income tax bracket will be. If you are in the 12% bracket just deduct the standard deduction for single or married and tax the remaining amount you will withdraw from you 401k.
Example:
For 2023 standard deduction for single is $13,850 and $27,770 for married filing jointly. So assuming a $50k 401k withdrawal and filing jointly would be $50k - 27.7k, leaving $22.3k taxable.
Now look up what tax bracket $22.3k falls under, which for 2023 is the 12% bracket. Tax would be $2,676 in 2023 on a $50k 401k withdrawal with no other tax deductions considered.
So a withdrawal of $50k from your 401k in 2023 would net you $47,324 after federal taxes and no state income tax.
Also, the current tax brackets and deductions are all set to sunset the end of 2025 and return to what they were previously. The only portion of the Trump tax cuts which will remain are the corporate/wealthy tax cut portions. For my example above that will mean the 12% bracket will be reverting to the 15% bracket with far less standard deductions and other deductions available. Or to put it simply, unless Congress extends the current tax laws taxes will be rising for individuals starting in 2026.
Regarding the frequent discussion on at what age should you start taking social security, how do you take the more likely future reduction in payments resulting from no longer having a surplus in reserve, into a presentation format? As a recently retired accountant, I took this into account in my analysis and it changed the logical choice. Results will be impacted by what year, how much will the reduction be, and what possible regulation legislation will become the final rule.
Current plan is to delay SS until 70 (longevity genes) and draw down/Roth convert from pretax from age 66 to 72, to reduce RMDs. Currently don't have any post tax $ beyond some operating cash for the next 6 months spending, but plan to sell a house soon. After RMD starts, plan to use Roth and brokerage whenever spending needs or wants go above what's prudent where tax brackets and IRMAA are concerned.
Phil & Claire are my favorite Dunphy's. They sound like a really modern family. ;-)
I know them as well. I’m concerned this guys doesn’t know them. They met in college. No way they have a 7 year age difference.
Question: It looks like these examples empty one bucket at a time completely... If 401k growth withdrawals count as ordinary income, rather than capital gains, wouldn't you start each year withdrawing from that until you get to the higher tax bracket (currently a jump from 12-22%), then withdraw what you need for the rest of the year from your tax free account?
And if it's ordinary income, rather than capital gains, which account are you starting with at that 0% rate (which appears to be on the long-term capital gains schedule)?
THis was exactly what I was looking for. Tax repercussions! I grew up in Silver Lake! I saw you are around the corner!
You said to take from your taxable account first, then from your tax deferred account. But if you’re 73 don’t you have to start withdrawing?
Hi Kevin @foundryfinancial I appreciate your content. I teach Personal Finance at the Bauer College of Business at University of Houston and was hoping to get your permission to use your videos in my course. I have been teaching since 2012 and one of my favorite lessons is the 3 Bucket Strategy, its really just and introduction to Tax-Advantaged Investing. Your video goes deeper than mine and I wanted to share your videos with my advanced students and also those who are now well into their careers. keep up the great work, my friend!
Maybe I heard wrong, but around 7:10, I thought it was mentioned that if you put $20k into a 401k or 403b, it reduces your taxes by $20k. I believe it was meant to say that if you earn $70K a year, and you put $20K into your 401k or 403b, that your federal taxable wages are reduced by $20K and the fed taxes are calculated on the $50K. FICA I don't believe is affected by this. I could be wrong on what I heard.
Yeah, that’s what I meant to say. And FICA is not impacted. Although that’s only applicable on a certain amount of income.
Great content, thank you Kevin!
Thank you!
Hi Kevin. Love your videos and definitely need some help. Are you actually taking new clients, or are you handing off your client leads to "an elite advisors whom you've trained personally"?
I'm very interested in working with you. Unfortunately I am not at all interested in working with a Lum protege.
Thanks!
Shouldn't one move more of their assets now to dividend paying stocks, rather than just bonds?
Kevin - your videos are excellent; well explained and full of common sense. Thanks so much.
Thanks, Brian! I really appreciate it.
Dont wait to reduce your traditional IRA, convert or get the IRA lower before your get old. There are old age traps in a traditional IRA you cant afford.
I think the retirement crisis will get even worse. A lot of people can’t save because of low paying jobs, inflation, and insane rental rates. And now that home ownership is out of reach for middle class Americans, they won’t have a house to retire with either.
Thank you for a great video with the couple's examples. Of course, everyone situation is different, but this gives enough information to build a better financial future. I will be checking out your other videos to get a full understanding of getting ready for the dreaded RMDs . I will start with your software tool and see where I stand and work the process.
Something else to consider is inherited IRAs. Obviously not many people have them, but it can ruin a good plan, especially if you’re not Medicare age and using ACA.
Great point!
Just a slight correction... Putting 20K into a 401K doesn't reduce taxes by 20K it reduces your taxable income by 20K (6:57). You probably meant this, but it didn't come out that way.
You’re correct. I should have been more precise.
When retired, I won't be pulling $100,000 a year out of my 401 and get taxed 30%. Most people would be broke in 2 years or less. I'm in a 30% tax bracket while working and I will be in a 12% + or - tax bracket while retired. So to me, a 401, tax deferred and matched, is the best route.
The option that is left out here, and probably the best option, is passive income with a dividend paying whole life policy.
Is 1.4mm really the normal portfolio for the average retiring American family? If so, I really messed up somewhere 😢.
Yeah, most of us cannot relate to that at all. I think he used a ridiculous example.
I don't have a gap. I only spend 30% of my fixed income and invest 70% but I also get interest income from bank CDs and RMDs that I use QCDs to negate.. I don't pay taxes Fed, State, and Property Taxes. I use my negative gap to make Roth conversions so I'm rapidly knocking the RMDs down. Over the next 5 years, my QCDs will be about the same as I give to charity anyway and I' will about halved my rollover IRA. After 5 years, I'll recalculate. The only downside is I have to do my taxes for 2024 as an estimate to manage my future tax liability (recheck Dec1) and also file my taxes for 2023 too. I do my own taxes.
I just saw sone other video showing breakeven period for starting social security benefit at age 62 vs age 70 . The breakeven age was 79 years. This surprises me that after age 80 you won’t be able to spend money with your health even if you have lot of money. With the crazy inflation, the breakeven period will even get pushed back. Considering average life expectancy of 83-84 years, it doesn’t make sense to push back social security benefit past age 65.
This is often the case. Most people don’t calculate break even which is a real mistake - I was an accounting professor and covered the importance of break even in my managerial accounting course.
I think people get so worried that they will live beyond the average life expectancy, they get scared into delaying withdraw.
I did a break even analysis for my pension plan and I would have to live to 90 before break even. It made it a no brainer to start taking it at 55.
I did not get it. What means 500 000 additional value- is it good or bad? More taxes? What is the right strategy. Can you answer here?
Thanks for the great videos and letting me see how you're able to model Roth Conversions with Right Capital. Fidelity shows you RMDs but as far as I know, doesn't allow you to see the impact of changing your withdrawal method or see the impact of Roth conversions. I really like the tool but the "Edit" button on the Calibration screen is missing so we can't modify the conversion period. When I try it now, it has conversion starting now while I'm still working and honestly, the taxable income is too high for me to be able to cover that much additional conversion tax. Can that option be enabled? I.e. to set conversion start and stop ages? Also, should we be withdrawing from Taxable account balance to cover the Roth conversion tax?
Thanks again!
Looking forward to the Roth conversion topic
Is the Right Capital link to the software working? If not, is there a plan to fix it. Thanks for sharing this valuable information!
Please note. If you can't swim, try not to dive into the deep end.
To retire, you better either have a pension with SS or $500,000 in savings. To retire, you can't have a mortgage, a car note, or a big credit card bill! Oh, medical insurance is a must!
It actually depends on your retirement income and investments. A mortgage or a car note in retirement is no different than at any time in one's life. If those fit within your budget no issue.
A big credit card balance is a NO NO at any time.
@jerrylundegaard2592 NO, it is not the same. First, working a regular decent job, you could look forward to a raise. Next, if you don't like the job, you go to another one. In retirement, seldom do you see a decent raise. Also, if you want to quit retirement, it doesn't usually work unless you die.
@@johncipolletti5611 You MISS the point. Reading comprehension difficult?
I did not suggest everyone who is retired is able to have a mortgage, a car note or a credit card balance. I said it depends on the retirees income, investments and expenses.
As with most things, it depends.
Seriously, if a retiree has a good retirement income, investments and manageable expenses why would they want to quit retirement or find a job?
@jerrylundegaard2592 Funny how you say this to a teacher of 30 years with advance degrees.
@@johncipolletti5611 Does not change the fact you MISSED the point. And we all know "advance degrees" mean nothing when it come to intelligence or common sense.
Getting ready to retire with only taxes on my home insurance on my cars and electric bill and phone bill. I don’t understand these examples of 10k expenses a month
I think it would be easier if the government didn't tax investments, they can tax our paychecks, but I would prefer they don't touch our personal investment.
Your investment isn't taxed (if you paid tax prior to investment). The earnings on your investments are taxed. If these were not taxed, you'd be taxed in some other way, so be careful what you wish for. (But of course, I still wish for it too 😊)
@@chrys.w.8022 More importantly Social Security should not the taxed. The levels when taxes kick in have not increased with inflation for decades. It's a stealth tax.
You’ll need to move to another country 😂 the US is never going down that path ☹️
@@celtictiger90Haven't increased since Reagan taxed SS benefits in the first place, I think it was done to pay for HIS Tax Cuts for the Rich.
Explain how something compounds without paying a dividend. People throw that term around like it's so easy to do. If I but a stock at 10$ and let it grow how will it compound without just it's growth and any additional buys I might do? I know the concept for example 10% growth of 10$ is $1 so now you get 10% of $11 and so on and it grows. But no one can show me real world examples of buying a stock and showing how it will compound. Thank you
The example you gave of paying zero tax on your taxable accounts, up to 100k for a married couple...Does that apply to any certain age? In other words would that apply if they pulled their money at age 57?
Pretty good video. You buried the lead a few times from my perspective. I.e. they did a Roth conversion? Did they turn the Roth into wine? What is a Roth conversion? I will look it up
You don’t have zero income in the years prior to social security when you retire. The interest and dividend from taxable accounts are taxed as ordinary income even if you do not withdraw a single cent. If you have a reasonably large amount in taxable accounts, that results in a substantial income making any ROTH conversions at the 22% tax rates. This is definitely the case if you are single.
RMD makes us take $25K out of our IRA investments. No choice there.
That was my same thought. I have an inherited (beneficiary) IRA that I now have an associated RMD to consider. 😢
Thank you for sharing this info☀️☀️☀️
Glad I found you’re channel, thanks
Where does ssi rank in all of this? Should you take ssi before tapping Roth, IRA, 401k?
Thank you Kevin, very informative video. Would this withdrawal strategy apply when there’s a gap between retirement and Medicare ?
Most likely, but if you’re optimizing for ACA subsidies it can be trickier.
Hi Kevin, Do you have any information on Roth conversions?
At around minute 12:45, in reality the tax brackets are adjusted yearly which allows retirees to take higher distributions without moving to a higher tax bracket. For example, a couple in 2023 filing jointly can withdraw up to $89,450 in taxable income (401k for example) and remain in the 12% tax rate whereas in 2024 they can take up to $94,300 (almost a 6% increase).
I guess if I were retired today, I would strategically give myself and spouse a raise up to the IRS adjusted bracket only to avoid moving to the third tax bracket- 22%!
Thanks for the great videos and the link!
Thank you and appreciate the link.
He said " if you put $20,000 in your 401k this year you'll be able to take $20,000 off your taxes". Wrong, or at least he misspoke- it reduces your taxable income by $20,000 - not your tax.
Great video. Signed up for RightCapital, but many features are missing. No Retirement or Tax tabs.
It takes 24 hours after signing up.
Aren’t Capital Gains tax free if you are under the minimum income limit for the 15% capital gains tax bracket? If true this would favor pulling from your stocks first and let your trad and Roth IRAs cook until you need them.
I think there was a big SS income clarification needed. If Phil has filed SS he would get $3200 per month, his wife would only get $1,600 not her $2,800. Unless she files before Phil. She might want to file at 62 since her reduced income would be greater than $1,600. When Phil files her amount would be reduce to half of his $3200.
If you pass on assets in a regular taxable account, is it inherited at a stepped up basis?
I don't understand why you want to pull from taxable before tax-deferred. If my taxable investments are low-dividend and/or qualified-dividend paying, withdrawals will be at LTCG rates, and some could even be tax-free (interest from in-state muni bonds), whereas all withdrawals from tax-deferred accounts will be at ordinary income rates. Withdrawing from tax-deferred first will preserve the lower-tax investments for as long as possible and reduce the impact of RMDs later. So at the moment I'm thinking of using taxable for low-dividend growth investing and muni bond investments and withdrawing in the following order: dividends and interest from taxable investments, tax-deferred investments, capital from taxable investments, and last tax-free investments. Some taxable money could also be used to fund Roth conversions.
Just depends on your long term goals and goals. Often your strategy is exactly right. Honestly, in this video I just wanted to show people the impact of getting this right and give them a tool to model it. This is why online calculators and one size fit all proclamations never work. And honestly, why I still have a job. Some clients will touch almost none of their taxable or their tax-feee accounts
I'm 62 and retired. I'm pulling $100,000 from my taxable account in 2024. My capital gain will be about $18,000 and taxed at 0% federal. I'm also doing a $29,000 401K to Roth rollover, which will be taxed at 10.6% federal.
If I withdrew the $100,000 from my 401K, I'd be taxed at 22% federal, which is $22,000. I'm getting $100,000 from my taxable account for $0.
Starting in 2024, my plan is to never be in the 22%/25% tax brackets again. I'll complete my 401K to Roth conversions by 12/31/25, as I'm assuming tax rates will increase on 1/1/26.
Withdrawing $100,000 for my living expenses from my taxable account, was optimal for me. I've been doing Roth conversions since 2015, thus, I've already got my 401K balance reduced quite a bit.
Completing my Roth conversions is my highest priority, as my tax rate avoided on Roth withdrawals will be 45% (Federal, State, IRMAA & NIIT). Withdrawing the $100,000 from my 401K would have increased my adjusted gross income by $100,000, while withdrawing $100,000 from my taxable account only increased my adjusted gross income by $18,000. I would have been UNABLE to do a 2024 Roth conversion, had I withdrew the $100,000 from my 401K.
Nothing beats a Roth IRA, filled with low cost index stock funds.
The key feature of my ability to do Roth conversions, at an average 13.2% tax rate was receiving some cash, via inheritance and a cash-out refinanced mortgage.
Do you have a recommendation(s) for Americans living abroad where Roth is not a viable option?
While I agree that using the funds from a taxable, investment account first is a good strategy, what about RMD's? Should I start taking distributions from my IRA/401k to reduce the balance before I am required to take distributions?