Smooth Withdrawals vs RMD's

I currently am fortunate enough to not require the full smooth withdrawal that ESP recommends. The smooth withdrawal model, however, generates a larger tax liability than I currently incur in reality. As I have changed smooth withdrawal start dates and end dates, it appears that ESP produces a larger tax liability each year the more I delay the start of the smooth withdrawals. It does so while reducing the IRA totals to zero. Is there some way move the tax liability to my heirs (i.e., not incur the tax expense in my modeled economy)? I may be wrong, but I'm thinking that would divert some of the money ESP is applying to the larger tax liability toward increasing the consumption number within my lifespan. Any thoughts?


Dan Royer's picture

Note that you can indicate that you don't want to withdraw the full 100% of your qualified retirement assets. That said, the program will require you to take RMD. I don't know enough about tax rules to say how heirs deal with taxes and left over qualified accounts. But also note in assumptions you can indicate how much of your "regular" assets are at the cap gain rate.

Thank you both for quick replies. Based on a first test at 80% for both spouses, it appears to avoid the lump of large taxes in later years. I'll continue tinkering, since it did also raise the consumption level from my prior scenarios. Always good to have additional eyes on the problem as I missed the parameter that was right in front of me!

Try experimenting with doing this for one spouse at a time. In the tests I've run, it seems that this works well although there may be many cases where alternatives could work better.

If you really want to get into raising your consumption, there are a few Forum posts on "optimization" that explore this topic.

Brian forums is a good place to get information about tax consequences and possible mitigation strategies.

To Dan's point under Retirement Accounts, Smooth Withdrawals, there is a field called "Specify percent of non-annuitized assets to be spent".

If you reduce this field to something less than 100%, it can force the program to the RMD levels, but you'll have to experiment to see what specific levels and if this benefits you or not. This can be done for each spouse.