efficient retirement withdrawals

Has anyone figured an efficient way to model retirement withdrawals from ROTH and traditional accounts? I figure it's some combination of ROTH and traditional each year and it can be tested on the special withdrawals screen, but it looks like it would take a lot of trial and error to figure it out. When I do withdrawals all from the traditional first, I end up paying no taxes at the end, which must mean I'd be paying too much tax early on, when it would make sense to seek a lower bracket.


dan royer's picture

The program doesn't provide a way to take both buckets (ROTH and 401K) at the same time. Because the ROTH provides interest free earnings, my tests have always shown the living standard going up when I put it last. But suppose a lot depends on the dollar amounts and the tax situation.

You can use the "Special Withdrawals" tab under Retirement Accounts to fully customize your withdrawals year by year including amounts and vehicle. You may ideally want different amounts in different years. It may make a difference if your withdrawals are from a Roth or traditional IRA/401(k) and also if the withdrawals come from your retirement account or your spouse’s retirement accounts, if married. One generally good option is to take tax-sheltered withdrawals up to the next (higher) tax bracket and then use Roth assets for any additional withdrawals in the same year. This can make your profile more tax efficient.

Since each user's profile is unique, the only way you'll know for sure is to do sensitivity testing which can help determine the options that are best for your profile. In two "optimization challenges" and my own experience, there are definite gains to be found here if you put in the time and effort.

To make it simpler to start, try to see how close you are to the next tax bracket in your earlier years. Then put in special Traditional and Roth withdrawals that keep you in the lower bracket for say the first 10 years or so. See how big a difference this makes and then you can adjust and fine tune as needed. If you want to spend the time, in a couple of hours you should see a nice benefit. It probably won't be huge, but still even a few percent higher standard of living should be worth the effort.


dan royer's picture

Ah, yes, I should have said no way to separate them as "smooth" withdrawals. You can do, as Brian notes, special withdraws.

Great, thanks very much. The reports don't actually show the tax brackets. I presume that I can use the "joint filer report" on the PDF version and assume current brackets for "taxable income." Does that sound right? (Yes, the brackets might change.)

It would be helpful if the reports did show how close your income is to the tax brackets. To simplify this, I use current brackets for taxable income along with deductions that are relevant to your situation.

By playing around with the inputs and reports for a few minutes, you should be able to see where the tax bracket transition points are that matter to you.

Just to be clear, the tax bracket approach is not the only option in this area that could be beneficial. If you are interested in digging into this, try sensitivity testing more of the special withdrawal variables and you may find a bigger boost.


I compared my total income to the IRS-published joint filer tables. In that way I found a single year where I was close enough to the threshold that shifting the source made a difference. I saved a little as a result

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