The general rule of thumb is that retirees should draw down their taxable accounts first, followed by their tax deferred accounts (401k and Individual IRA), before finally accessing their tax exempt accounts (corporate Roth and Individual Roth).
Kirsten Cook, William Meyer and William Reichenstein make the case in, "Tax Efficient Withdrawal Strategies" in the latest Financial Analyst Journal that conventional wisdom may be wrong and in fact using a more flexible approach based on marginal tax rates and pushing drawdowns in tax deferred accounts (and/or converting TDA funds to Roth accounts) could extend portfolio longevity significantly (15% more).
Essentially, using up a combination of all account types in relation to current and likely marginal tax rates, enables an extension of portfolio duration.
One thing they point to is leaving some funds in one's tax deferred account for a lot latter in life to pay for large end of life medical bills which can potentially reduce the effective tax rate to close to zero.
No comments:
Post a Comment