Latest / How to Retire on Time / How to Schedule Withdrawals From a $750,000 401(k)

Transcript

How to Schedule Withdrawals From a $750,000 401(k) · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look.
• 0:11
  David: How would you schedule disbursement of $750,000 in four zero one k beginning at age 65?
• 0:20
  Mike: K. So what's the problem here? The problem is I'm concerned about taxes going up. Most people on the call right now or on our our session have surveyed and said taxes going up is a big problem. Mhmm.
• 0:30
  This is a very normal concern to have. Mhmm. But in the analogy I just gave, doing too aggressive of IRA to Roth conversions actually dwindles your account faster. More money is leaving going to taxes. So now you're trying to grow less money.
• 0:45
  If you're trying to grow less money over a thirty year retirement period of time, you could actually run out of money sooner.
• 0:49
  David: Uh-huh. It seems counterintuitive, but yeah. You've you've it feels like it oh, if I just don't have to pay any tax then Yeah. In the future, then that's that's what I want more than anything else.
• 1:01
  Mike: Let me tell you a story where I felt really dumb recently.
• 1:03
  David: Oh, alright.
• 1:04
  Mike: So you know it's flu season.
• 1:05
  David: Yeah. Are we in that season officially?
• 1:07
  Mike: If school's in session, it's flu season.
• 1:10
  David: That's true. Yeah. So we're there. Yeah. So Yeah.
• 1:14
  Our petri dish kids.
• 1:15
  Mike: Croup r s is it r s v?
• 1:18
  David: RSV. Yeah.
• 1:19
  Mike: RSV. The common cold. Whatever it is.
• 1:22
  David: Yeah. Fill in the blank. There's a
• 1:23
  Mike: lot But of the petri dish kids just spreading it. Yeah. So I go to CVS because that's what's close to my house. Yeah. And I I buy a bunch of stuff.
• 1:34
  You know, I'm loading up on the all the the kid medicines because sometimes they run out. Mhmm. So I'm just stocking up. All is well. And I go there, and I just I never get the receipt.
• 1:46
  And this one clerk, she says, why don't you want the receipt? I said, I don't need to prove that I purchased this. She goes, no. Like, there's a lot of money on here. I said, what do you mean?
• 1:56
  Because look, there's all these receipts, and you're gonna get, I think I was like $10, literally just $10 cash. Really? Of just, I could just redeem. If I bought anything, had $10 cash or something like that.
• 2:08
  David: Some kind of like CVS rewards thing?
• 2:09
  Mike: Yeah, was just gonna throw it away. I'm like, well thanks for you not just stealing my $10 She goes, no, like people don't understand this. And then she says, now download the app. I said, I don't need another app. She goes, no, you do.
• 2:21
  You download the app, then you don't need to carry around the receipts. It's gonna be on there. Yeah. So you just scan it. It will always keep your receipts for you, you can spend more smartly, if that's a real phrase.
• 2:32
  Yeah. You can spend better over over here, over and over. Said, that's gosh, you should be like a part of a commercial or something. This is great customer service. Uh-huh.
• 2:40
  And so I download the app, and we're not sponsored by CVS here. Oh yeah. At all. Like this is just my personal experience. I'm going, this is kind of a sweet deal.
• 2:48
  Mhmm. And so I started to save, every time I go into CVS, like there's a coupon, I'm saving money. Mhmm. You know, $4 here, $10 here, whatever it is. I was throwing this money away.
• 2:59
  Now I've bought cough medicine most of my life, like Nyquil. Yeah. It's a staple. Right? It works.
• 3:05
  I don't know what's in it, but it works. Dayquil. Yeah. What Theraflu, like these are things you kind of wanna have on stock. Right?
• 3:12
  Yeah. So anyway, the point being is I was throwing away money without even realizing it because I never looked at the receipt. I never understood the coupons that they kept giving me and ended up in the garbage can. Mhmm. That's tax planning for most retirees.
• 3:26
  Mhmm. The standard deduction every year is a coupon that expires December 31 of just tax free income. We've got a guy, he's got what $7,000,000. We're working on his plan right now. He's in his late late thirties, early forties.
• 3:43
  He's got 200 in his in his four zero one k, and the rest of it is just, you know, stocks brokerage accounts and so on. Right? You know, the tech dream that your startup makes it big.
• 3:54
  David: Okay.
• 3:56
  Mike: So we're navigating this income with long term capital gains, which is a normal thing to do. But every year we're using that standard deduction as an IRA to Roth conversion starting in his forties.
• 4:06
  David: Mhmm.
• 4:07
  Mike: To slowly move assets tax free. Mhmm. That's a coupon. I wanna use that coupon every day for the rest of my life. I never want my IRA asset to go to zero because I wanna utilize that coupon, that standard deduction as long as it's there.
• 4:22
  Taxes go up, there's still a standard deduction. Yeah. And if tax brackets change, okay, the 1012% bracket, it's the 15% bracket. That's still a better deal than the 2422% bracket. So we gotta pump the brakes here, and ask situationally, where are you on the tax spectrum of things?
• 4:42
  Where are your assets? And where do they need to go? So for Dean Yeah. We gotta pump the brakes here. It's a good intention.
• 4:51
  But when are you gonna file for Social Security? How old are you? What's the income that you want? Are there other assets we need to consider? When do your RMDs start?
• 4:58
  See if we run the plan first, then we explore the strategies, then we're gonna understand the seasonality of his withdrawal schedules. Whether it's withdrawals for him to spend, whether it's withdrawals that are actually conversions that go to the Roth.
• 5:15
  David: Okay.
• 5:16
  Mike: Or a combination of the two, and maybe we pepper in some qualified charitable distributions because he just he has charitable intent anyway. Mhmm. So we this is the question that advisors love because they can say, well, you know, that over over fifteen years, here's how much how you do, here's the conversion ratio, Here's your fifteen year IRA to Roth conversion. Let's ignore the ripple effect of all the other parts of your plan, and let's just say that there's your answer. Now, can I sell you my product?
• 5:44
  Yeah. Whether it's a stock bond fund portfolio, whether it's a REIT, whether it's annuity, whether it's a partnership, whether it's a whatever. Right. It's what gets my goat.
• 5:54
  David: Your goat
• 5:55
  Mike: is As we've been trained to ask these questions, and they're the wrong, they're the right questions in the wrong order. Mhmm.
• 6:04
  David: Alright. Well, yeah. So so what's the final answer for Dean then? Do we just don't know, like, hey, we need to we need to have all the considerations on the table here? Yeah.
• 6:12
  Fill in the missing blanks.
• 6:14
  Mike: Yeah. How do you get more out of your money? I mean, honestly, if you want to pay the smallest dollar tax bill Mhmm. Convert everything over in one year. Mhmm.
• 6:25
  Because you will pay more tax dollars if you spread it out over the lifetime.
• 6:32
  David: Mhmm.
• 6:33
  Mike: But you're also going to keep more dollars if you spread it over your lifetime.
• 6:38
  David: Yeah. Yeah.
• 6:38
  Mike: Yeah. The IRS is the tax partner that you didn't ask for Yeah. With all of your retirement assets. You can't get rid of it. Uh-huh.
• 6:47
  But you're properly aligned that if you spread it out, it's gonna be easier for everyone. If you condense it, it's more painful for you. I I don't think the IRS really cares.
• 6:59
  David: Right.
• 7:00
  Mike: There As long as you file your taxes correctly, they don't care. Yeah. So it just It goes back to people ask the right questions in the wrong order.
• 7:11
  David: Oh, right.
• 7:12
  Mike: And that's potentially multiple 7 figures of inefficiencies to where you're giving your kids a million dollars less. Would that bug you? To give your kids a million dollars less?
• 7:24
  David: Yeah, I guess so.
• 7:25
  Mike: Yeah. I'd like to think so, but that's that's up for you to decide. You just don't care. Yeah. I don't know.
• 7:32
  Alright. If you're here and you're like, okay, it's time to start the planning process. Five years out, retire, doesn't matter. The plan is first, strategy is second. You can do that at any time, even if all of your assets are locked up in the four zero one k, doesn't matter.
• 7:47
  Mhmm. Plan, strategies, portfolio. Retire on time.com/call is how you get started.
• 7:55
  David: And so with Dean, just to wrap up on Dean. Yeah. He we don't know his situation, so just hypothetically, a few strategies he could use. Like, one, hey, just take income from your four zero one k and pay ordinary income taxes. Or two, pepper in some Roth conversions.
• 8:12
  Or three, maybe some Roth, some income from that, and some annuity lifetime income. Mean, These are all different strategies I'm just throwing out there.
• 8:22
  Mike: Yeah. So you blend in tax strategies and then products in there. So annuity is a product. Mhmm. So does he does he need income?
• 8:29
  Does he not need income? There are strategies like you could buy an annuity. I don't like this strategy, but it is out there. So let's talk about it. Mhmm.
• 8:37
  You could buy the annuity, and basically turn on lifetime income, and avoid a large part of your RMDs, because you've now got lifetime income, but there's no cash value. This is not an index annuity. This is a different type of annuity.
• 8:51
  David: Alright.
• 8:52
  Mike: So if you died, there's all the money's gone. Oh. People say, that's a bad deal. Well, it's kinda like a pension. Yeah.
• 8:58
  You died, there's no cash value left over.
• 9:01
  David: Yeah. Yeah.
• 9:01
  Mike: Yeah. And you're trying to get out of it, but are you jumping over dimes to pick up pennies? That's a concern. Yeah. So with the indexed annuity, you still have a death benefit.
• 9:10
  So if there's money left over, that goes to the kids. That's better than a pension. It's still a good payout. But are the RMDs gonna be an issue? For some people, yes.
• 9:19
  Some people, no. And if your RMD required minimum distribution is let's say, $10,000 above the income you already wanted. Is that really that big of a deal? Because you could just take all of it, spend some of it, and put the 10 k, and then pay the taxes. So let's say 8,000 just goes to your brokerage account, and that just goes to the kids, grows until it goes to the kids.
• 9:42
  They get a step up in basis, no tax issue, all is well. Yeah. Is that really that big of a deal? Right. I think sometimes we stress about the wrong things.
• 9:50
  We make mountains out of molehills. When we realize there's there's a there's a bigger risk or a bigger inefficiency, and we're so micro focused on the small things because that's what we read about. Mhmm. That even goes far as to say if if there's 10 k extra and you're a church going person, you do tithe. Yeah.
• 10:09
  I mean like even Muslims, like they have their own version of tithing. Mhmm. Jewish people have their own person. Like every religion has a form of of tithes or charitable gifting or something. Yeah.
• 10:22
  Charity is a nice thing.
• 10:23
  David: Yeah. It's
• 10:25
  Mike: a good part of religion. It's trying to be charitable. That's true. Yeah. So send your QCD, your qualified charitable district, the 10,000 you didn't need, just send it to to whoever the charity is Yeah.
• 10:35
  Or church. You don't wanna pick products until you understand the tax rules. If you're doing IRA to Roth conversions, you might not want an annuity. That will get in the way of your conversions because once you turn the income, you can't do conversions for most products. Some you can, but those might not pay as good of an income stream.
• 10:54
  David: So lots for Dean to consider then.
• 10:57
  Mike: Yeah. This is why the planning process is so important, and you need to plan with someone that's not gonna sell you a product at the beginning. Yeah. That's actually gonna take time and explore those strategies. Yeah.
• 11:07
  I hope there's a lot of people on here. And let me in the chat let me know in the chat if you appreciate this kind of conversation, if you appreciate the candor, the the openness about this, as we're taking probably what is in your head, the things you wanna solve, and trying to get you to pull back and ask deeper questions. We don't want you to jump over diamonds to pick up pennies. We don't want you to put the cart over the fort over the horse. Put the cart before
• 11:31
  David: the There we go.
• 11:33
  Mike: But let me know in the chat if you appreciate the kind of conversation. It's for you. So for all those who are tuning right now going, hey, this is this is great. What's the next step? I'd say come to our workshop.
• 11:42
  It's this Tuesday night at 06:30 Central Time. We're hosting it on Zoom, so you can attend the comfort of your home. Just go to retireontime.com/workshop to RSVP. That's retireontime.com/workshop. We'll see you there.