Author Topic: Early Retirement withdraw strategy  (Read 4254 times)

kerrbrad1992@gmial.com

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Early Retirement withdraw strategy
« on: December 17, 2021, 08:53:51 AM »
My wife and I will turn 54 in 2022.  Planning on both going part-time in 2022 until we turn 59-60.  We will need to supplement our income from retirement savings ($30K/year).  Wife will be able to keep insurance with her part time work (current full-time employer).  No pensions in our future.  No debt and own our home.
Assets with Vanguard:
My traditional IRA- $495K (350K-VBTLX 145-VTSAX)
Wife’s traditional IRA- $94K (VTSAX)
My roth IRA- $397K (VTSAX)
Wife’s roth IRA- $207K (VTSAX)
Brokerage account- $384K (VTSAX)
Assets with Schwab (wife 401K)
Roth- $141K (black rock equity index)
Pre-tax-$47K (black rock equity index)
Money Market:
40K
Total:
$636K Qualified Pre-tax
$745 Roth
$424 brokerage/savings
$1,805,000
Strategy to achieve the $30k supplement income and max out 12% bracket with roth conversion???
1.   Ordinary income from part-time work will be $20-30K, pull $30K from brokerage account and do a roth conversion on roughly $40-50K and pay the tax from savings?  This will keep us below MFJ-$80,800 so we will not pay LTC tax???  Correct?
2.   Does it make any sense to do a SEPP/72t vs. option one?
3.   One concern is my bond holdings are in my pre-tax account so should I move some of the brokerage funds into bonds to have that option if stocks are down? 
4.   Currently at 80/20? Is this enough bonds? 
Thoughts?  Thank you! 

bk

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Re: Early Retirement withdraw strategy
« Reply #1 on: December 17, 2021, 12:21:33 PM »
Going in reverse order

4 - You can think of Social Security as part of your bond allocation, so your portfolio is more than 20% bonds. Probably enough, imo. Some people target 60/40 as a retirement portfolio.

3 - Money is fungible - bonds are bonds.
If the market drops and you want to rebalance, you can do it in the pre-tax or Roth accounts.

If the market is down and you want to spend bonds to allow the market to recover, you can sell stock in your taxable account to get cash and then trade the bonds for stock in your retirement accounts. Asset allocation is the same either way and the trades are tax friendly.

2 - SEPP is less flexible than Option 1, but certainly a good option

1 - How to get $30k - just take it from the brokerage account. You have 10+ years of runway

You get the standard deduction (~$25k) AND a large 0% tax bracket for LTCGs (~$80k) so total income of ~$105k before LTCGs are taxed

Having health insurance premiums independent of AGI is a very nice thing to have, so that does give you Roth conversion opportunities. Roth conversions AND LTCGs are taxable at the State level in most states, so just be aware of that.

So...
$30k W2 income
~$5k in dividends in brokerage account
~$15k in long-term capital gains (selling $30k of VTSAX assuming it has doubled since you bought it, for example)

This leaves ~$55k of wiggle room for future tax optimization.

You can cap gain harvest next-year's sale of $30k of VTSAX
And do a Roth conversion to fill at least the 10% bracket (~$15k Roth conversion), maybe some 12%. With "only" $650k in traditional accounts you may never pay more than 12% tax. 12% now or 12% in 20 years is mathematically the same so no rush.
https://www.gocurrycracker.com/is-your-401k-too-big-part-2/

This calc can help you figure out the right numbers
https://www.gocurrycracker.com/federal-income-tax-calculator/

Example with $15k Roth conversion





kerrbrad1992@gmial.com

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Re: Early Retirement withdraw strategy
« Reply #2 on: December 19, 2021, 05:14:19 AM »
Very helpful, 
The brokerage account is with Vanguard and the default cost basis method is average cost.  Is there a method that is better (FIFO, HIFO, Specific ID etc.) ?  I have never sold or done capital gains harvesting so need to learn more about this.

Thank you! 
bk

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Re: Early Retirement withdraw strategy
« Reply #3 on: December 19, 2021, 01:42:23 PM »
specific shares is best - always choose the shares that have the highest cost basis. The goal is to have the most dollars worth of shares at full basis

kerrbrad1992@gmial.com

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Re: Early Retirement withdraw strategy
« Reply #4 on: December 22, 2021, 05:47:05 AM »
ok, so if I am going to harvest capital gains with the Vanguard brokerage account can I sell VTSAX and buy VTSAX back on the same day?  Thank you.
bk

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Re: Early Retirement withdraw strategy
« Reply #5 on: December 22, 2021, 07:44:31 PM »
There are some limits to buying/selling same shares of a Mutual Fund on the same day. Vanguard calls it a violation
https://investor.vanguard.com/investing/online-trading/trading-penalties

With VTSAX you may end up selling at market close on Day 1 and buying at Market close on Day 2

There are zero restrictions trading ETFs, e.g. VTI