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What Accounts should I withdrawal from first in Retirement?

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Retirement brings about new financial considerations, including the decision of which accounts to withdraw funds from first. Making strategic choices about the order of withdrawals can have a significant impact on your tax liability, retirement savings longevity, and overall financial well-being.

In this blog post, we will explore the factors to consider when deciding which accounts to withdrawal from first during retirement.

  • Required Minimum Distributions (RMDs):
    • Once you reach the age of 72 (70 ½ for those born before July 1, 1949), the IRS requires you to take annual withdrawals, known as Required Minimum Distributions (RMDs), from your tax-advantaged retirement accounts such as Traditional IRAs and 401(k)s. Failure to meet RMD obligations may result in substantial penalties. Therefore, it is crucial to prioritize these withdrawals and ensure compliance with IRS rules.
  • Tax Considerations:
    • Tax efficiency is an essential aspect of retirement withdrawals. Understanding the tax implications of different accounts can help optimize your withdrawals and minimize the overall tax burden. Generally, it is advisable to consider withdrawing from taxable accounts first, such as brokerage or savings accounts, as they typically have lower tax implications compared to tax-deferred retirement accounts.
  • Social Security Benefits:
    • The timing of Social Security benefit withdrawals is another important consideration. Delaying Social Security benefits beyond the full retirement age (FRA) can result in higher monthly benefit payments. Therefore, it may be beneficial to use other income sources to cover expenses initially, allowing Social Security benefits to continue growing until a later age.
  • Roth IRAs:
    • Roth IRAs provide tax-free growth and withdrawals in retirement, making them an attractive option for early withdrawals. Since contributions to Roth IRAs are made with after-tax dollars, qualified withdrawals are not subject to income tax. Utilizing Roth IRA funds earlier in retirement can help reduce taxable income and potentially provide more flexibility in managing future tax obligations.
  • Tax-Deferred Retirement Accounts:
    • Withdrawals from tax-deferred retirement accounts, such as Traditional IRAs and 401(k)s, are subject to ordinary income tax. Depending on your tax bracket, it may be advantageous to delay withdrawals from these accounts until later in retirement when your taxable income may be lower. However, consider the impact of RMDs, as mentioned earlier, to ensure compliance with IRS regulations.
  • Long-Term Financial Planning:
    • When deciding which accounts to withdraw from first, it is essential to align your choices with your long-term financial goals. Assess your overall retirement income needs, investment strategies, and potential future expenses. Consulting with a financial advisor can provide personalized guidance tailored to your unique situation, helping you develop a comprehensive retirement withdrawal strategy.

Determining the order of withdrawals in retirement is a complex decision that requires careful consideration of various factors. Prioritizing RMDs, evaluating tax implications, optimizing Social Security benefits, leveraging Roth IRAs, and managing tax-deferred retirement accounts are essential elements of a well-rounded withdrawal strategy.

It is advisable to seek professional advice and develop a personalized plan that aligns with your financial goals and circumstances. By thoughtfully navigating your retirement withdrawals, you can make the most of your savings, minimize tax liabilities, and enjoy a financially secure retirement.


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This content not reviewed by FINRA

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