How do you get retirement money out to spend?

[cronewitch]

I take RMD in January, convert a bunch to ROTH and gift a bunch to people. This leaves me with a little extra maybe but usually reinvest so get nothing. Quarterly the dividends post but I reinvest them unless I need some money.
Sometimes I sell some taxable investments and keep the money. I get no steady income from retirement or investment accounts.
Today I sold ROTH ETF shares to get a little spending money because I am feeling broke. I live on social security but new car, car insurance and house insurance all at once made me feel broke. 
How would you take an allowance from ROTH, taxable, tIRA to get a steady income if you wanted one? Would you want one or just take money as needed?

[tallguy]

I have no need or desire for a steady income, so would just take it as needed.  If you feel a need to take your entire RMD up front, either to make sure you don't forget later or to just get it over with and out of the way, fine.  Put the money in your savings or taxable account until you either do or plan all of your own spending.  Later in the year you can figure out your tax liability and decide the most efficient way to take other money out, and where to take it from.  Then do your giveaways.  Unless you consider giving money away to be the most important thing you do, it would be better to do from the left over money at the end rather than doing it earlier which might screw you up later.

So much depends on each person's situation.  How much they have, how much is in each type of account, how much they need, whether they wish to leave money to heirs, etc.  My needs and desires will likely be much different from yours, but my Roth money is the most important money I have.  I would never spend Roth money just because it is there.  That is for when I want more money but absolutely do not want another dollar of taxable income.

What I will probably do when the time comes is split my RMD and use the second part to withhold my tax liability for the year.  Since money withheld is always considered timely, it will eliminate the need to pay quarterly taxes.  

[azucena]

Nov 12, 2024 0:34:43 GMT -5 cronewitch said:

I take RMD in January, convert a bunch to ROTH and gift a bunch to people. This leaves me with a little extra maybe but usually reinvest so get nothing. Quarterly the dividends post but I reinvest them unless I need some money.
Sometimes I sell some taxable investments and keep the money. I get no steady income from retirement or investment accounts.
Today I sold ROTH ETF shares to get a little spending money because I am feeling broke. I live on social security but new car, car insurance and house insurance all at once made me feel broke. 
How would you take an allowance from ROTH, taxable, tIRA to get a steady income if you wanted one? Would you want one or just take money as needed?

Crone - curious why you're converting a lot to ROTH? I probably should be able to figure it out as lowering future taxes, right?

[minnesotapaintlady]

Do you feel like you need the encouragement to spend or do you not care? 

For me, not far below the fear of running out of money is the fear of dying with a huge pile of it. It means I turned down too many wants or wasted years working when I didn't have to.  I'm way better about spending income than savings, so setting up a monthly stream will be important for me...otherwise I'll live like a miser until I'm dead and my kids will cash in. 

[jerseygirl]

HOW are you converting to Roth? I thought rmd was not possible. Thought need to take RMD then take more that can be converted. But that’s probably what you mean,

I have an IRA annuity that gives me $86000/year but monthly . This gives most of my RMD.
For an RIA andTIAA and jerseyguy’ s IRA we get RMDs in November
I get dividends from brokerage account monthly
(Leva dividends in IRAs and Roth for reinvesting)

[thyme4change]

I’m still waiting for my 59 and one half birthday. 🥳

[bookkeeper]

DH and I retired early at age 55 and 50.  DH had a year and a half of income in a deferred compensation plan.  We started with spending that.  After that ran out, we settled on a $60,000 draw from DH's 401k at the beginning of each year.  When he turned 62, his social security was $26,400 added to our income.  I have some farm rental income that rounds out our total income.

When we need extra money, we have drawn from DH's IRA (taxable) or his Roth (not taxable).  Our effective tax rate is about 11%, unless we bump our AGI into 6 figure territory, which looks more like 15%.  Taking more income also means my Marketplace insurance costs more.  Currently paying $900/mo. for a high deductible plan for myself.  DH is on Medicare.  

We each have a Roth account which we guard carefully.  Once it's gone, it's gone and tax free income comes in pretty handy in retirement.

[NoNamePerson]

Nov 12, 2024 9:24:21 GMT -5 thyme4change said:

I’m still waiting for my 59 and one half birthday. 🥳

that struck my funny bone. Thanks for the laugh. Oh, and it'll arrive sooner than you think 

[Rukh O'Rorke]

Nov 12, 2024 9:24:21 GMT -5 thyme4change said:

I’m still waiting for my 59 and one half birthday. 🥳

its not as much fun as you think it is! just a few months later, you're 60! 

[Rukh O'Rorke]

Nov 12, 2024 0:34:43 GMT -5 cronewitch said:

I take RMD in January, convert a bunch to ROTH and gift a bunch to people. This leaves me with a little extra maybe but usually reinvest so get nothing. Quarterly the dividends post but I reinvest them unless I need some money.
Sometimes I sell some taxable investments and keep the money. I get no steady income from retirement or investment accounts.
Today I sold ROTH ETF shares to get a little spending money because I am feeling broke. I live on social security but new car, car insurance and house insurance all at once made me feel broke. 
How would you take an allowance from ROTH, taxable, tIRA to get a steady income if you wanted one? Would you want one or just take money as needed?

since your rmd will become larger and larger make sure you don't give too much away!

why not start with just taking the quarterly dividends and mark for your own spending?

Time to loosen up the purse strings and not feel poor!

[Rukh O'Rorke]

Nov 12, 2024 9:48:59 GMT -5 bookkeeper said:

DH and I retired early at age 55 and 50.  DH had a year and a half of income in a deferred compensation plan.  We started with spending that.  After that ran out, we settled on a $60,000 draw from DH's 401k at the beginning of each year.  When he turned 62, his social security was $26,400 added to our income.  I have some farm rental income that rounds out our total income.

When we need extra money, we have drawn from DH's IRA (taxable) or his Roth (not taxable).  Our effective tax rate is about 11%, unless we bump our AGI into 6 figure territory, which looks more like 15%.  Taking more income also means my Marketplace insurance costs more.  Currently paying $900/mo. for a high deductible plan for myself.  DH is on Medicare.  

We each have a Roth account which we guard carefully.  Once it's gone, it's gone and tax free income comes in pretty handy in retirement.

did you not want to do any roth conversions? If invested in the market, could be a good move to pay taxes now and let grow.

[bookkeeper]

We have discussed Roth conversions, especially the part about our sons inheriting the Roth money.  The alternative we have taken for now, is to deposit money from our taxable income into our sons Roth accounts directly.  No inheritance required. 

Our retirement accounts have done pretty well.  Over 10 years of draws and we still have 1.5 times what we started with.  The accounts have earned the money to pay the annual income tax on what we draw. 

I own some tax free municipal bond funds and stand to inherit some more when Mom passes away.  So, I already have a small tax free income stream in place.  I am currently reinvesting the dividends.  

DH is 5 years older than me.  A Roth conversion is something that needs to be done while both spouses are alive to maximize the benefit.  I plan to revisit the issue every year.  

We are feeling a little cash poor (first world problem) since we bought the house by the grandkids.  We used most of our ready cash for a downpayment, so no big box of money left to pay income tax on a Roth conversion without drawing out more taxable retirement funds.  We truly value our time with our grandsons, so that is the trade off for now.
I feel some of our money is best used simply living our life, rather than trying to beat the tax man.

[tallguy]

Nov 12, 2024 12:41:06 GMT -5 bookkeeper said:

We have discussed Roth conversions, especially the part about our sons inheriting the Roth money.  The alternative we have taken for now, is to deposit money from our taxable income into our sons Roth accounts directly.  No inheritance required. 

Our retirement accounts have done pretty well.  Over 10 years of draws and we still have 1.5 times what we started with.  The accounts have earned the money to pay the annual income tax on what we draw. 

I own some tax free municipal bond funds and stand to inherit some more when Mom passes away.  So, I already have a small tax free income stream in place.  I am currently reinvesting the dividends.  

DH is 5 years older than me.  A Roth conversion is something that needs to be done while both spouses are alive to maximize the benefit.  I plan to revisit the issue every year.  

We are feeling a little cash poor (first world problem) since we bought the house by the grandkids.  We used most of our ready cash for a downpayment, so no big box of money left to pay income tax on a Roth conversion without drawing out more taxable retirement funds.  We truly value our time with our grandsons, so that is the trade off for now.
I feel some of our money is best used simply living our life, rather than trying to beat the tax man.

I am of the same mind.  When my son started working I made his first Roth deposit for him to get him started on saving and investing.  The second year I matched what he put in.  When the rules about inherited IRAs changed, I quickly decided that it was far better to have the money in his account than to have him inherit mine.  As long as he puts in $2000 of his own money I will gift him enough to max the deposit.  I have way more than I need anyway, so this allows me to pass on some now for later advantage.  By putting it there I reinforce the idea of saving, and likely reduce at least a little the amount subject to the state estate tax.  In addition, I have zero effect on how he spends what he has now, other than "forcing" him to save some, so I never have to wonder if he is using my money frivolously.  Win-win. 

[MN-Investor]

You might find this article useful. It's from the Boglehead's Wiki -

Retirement draw-down priority

[teen persuasion]

Nov 12, 2024 0:34:43 GMT -5 cronewitch said:

I take RMD in January, convert a bunch to ROTH and gift a bunch to people. This leaves me with a little extra maybe but usually reinvest so get nothing. Quarterly the dividends post but I reinvest them unless I need some money.
Sometimes I sell some taxable investments and keep the money. I get no steady income from retirement or investment accounts.
Today I sold ROTH ETF shares to get a little spending money because I am feeling broke. I live on social security but new car, car insurance and house insurance all at once made me feel broke. 
How would you take an allowance from ROTH, taxable, tIRA to get a steady income if you wanted one? Would you want one or just take money as needed?

We have no taxable to speak of, 60% is tIRA or equivalent, 40% Roth. And we are also under 59.5, so directly withdrawing from tIRA would incur penalties.

When DH first retired, we had built up a pile of cash, and used that to supplement my part-time income. When that ran down, the next place to withdraw from was the HSA, we'd been paying medical bills OOP - now we withdrew from the HSA for those past expenses. We've also been doing small Roth conversions each year. 

This year should be the first time we tap the actual retirement accounts - we will withdraw from DH's Roth IRA, past contributions. We will keep Roth converting, and withdrawing contributions or past conversions, each year.

I like the idea of converting tIRA to Roth up to my desired tax level, and then withdrawing from Roth as needed for spending (no additional tax), even after we are 59.5+. It feels more complicated to withdraw from tIRA (taxable), then figure out how much more we can Roth convert (also taxable) afterwards, and not paint myself into a corner if a surprise expense comes up late in the year. It feels cleaner to separate it - Roth conversions = planned tax, spending from Roth = no tax, spend as needed.

I'd like to convert enough before taking SS at 70 that any RMDs are small, ideally no more than I want to supplement SS income for desired spending. In fact, if there's room in my desired tax level, I'll keep doing smaller Roth conversions after RMDs, to prevent a tax bomb for whichever of us survives the other, when filing as a single.

[bookkeeper]

The last I estimated DH'S estimated RMD at age 72, it will equal what we are drawing currently, adding more $$ for inflation.  401k has no mandatory RMD like the IRA that I am aware of.

I heard there may be some political people that change the rules from time to time .  All we can do is negotiate carefully what the law of the land requires. And then try to do the best we can.

[tallguy]

Nov 12, 2024 21:52:47 GMT -5 bookkeeper said:

The last I estimated DH'S estimated RMD at age 72, it will equal what we are drawing currently, adding more $$ for inflation.  401k has no mandatory RMD like the IRA that I am aware of.

I heard there may be some political people that change the rules from time to time .  All we can do is negotiate carefully what the law of the land requires. And then try to do the best we can.

Yes, a 401k is subject to RMD rules.  You can maybe qualify for an exception if you are still working and do not own more than 5% of the company, if I remember correctly.

Another difference with 401k plans is that the RMD must be taken from each account individually, while multiple IRAs can be aggregated for RMD purposes.  The amount must be figured individually but the total amount can be taken from any or all IRA accounts.   

[seriousthistime]

I arranged to have my RMDs withdrawn monthly, so I'm basically dollar-cost averaging my withdrawals. 

I haven't begun to withdraw from my Roth.  

I have enough money accessible to me outside the tax-deferred accounts that if I need some for a big ticket item, I can just use cash. 

[haapai]

I don't know if this answer was solicited but I'll chime in anyways. 

My parents take RMDs from my dad's rollover IRA monthly on the first and have federal and state income taxes withheld monthly too.  Dad mentioned that it would probably be less work/less adjustment to take them on the last of the month but I did not understand the reason. 

[cronewitch]

Nov 12, 2024 9:06:53 GMT -5 minnesotapaintlady said:

Do you feel like you need the encouragement to spend or do you not care? 

For me, not far below the fear of running out of money is the fear of dying with a huge pile of it. It means I turned down too many wants or wasted years working when I didn't have to.  I'm way better about spending income than savings, so setting up a monthly stream will be important for me...otherwise I'll live like a miser until I'm dead and my kids will cash in. 

I need to fell free to spend, not feel broke, I like to keep about 5K in two checking accounts one is my debit card account that has enough for groceries. I spend about $500 a quarter on food with the debit card, my other account is for bills and my bills run about $2K a month, social security comes in at 3.3K so don't usually need to refill the account. New car and house insurance came to over $2K when I only had $1K in checking due on social security day. I put in an extra 1.7K and got it paid.
I bought myself new pans and new little tiny crock pots this week. I seldom buy anything. I don't need to spend more than I want but don't like thinking not to buy something because of money. My tIRA has too much money I want it less than $500 but it keeps growing faster than I can remove the excess, I do my RMD and convert some to ROTH but try not to trigger IRMAA. I hope to have 1 million left for old age so can spend as much as I want. I have almost 2 million now so give away $30K in January so it can grow in their accounts instead. My last million is for assisted living or a nursing home between about a 10% return and 40K in social security I can nearly pay cash without dipping into the money

[cronewitch]

Nov 12, 2024 21:52:47 GMT -5 bookkeeper said:

The last I estimated DH'S estimated RMD at age 72, it will equal what we are drawing currently, adding more $$ for inflation.  401k has no mandatory RMD like the IRA that I am aware of.

I heard there may be some political people that change the rules from time to time .  All we can do is negotiate carefully what the law of the land requires. And then try to do the best we can.

Watch out for the RMD to grow like crazy, my account grows faster than I can remove money. 401K will be taxed like tIRA when he rolls it over or retires.
If you have a half million in tIRA and draw out a RMD of about 30K but it grows $50K you will have a bigger RMD every year. If you wait for it to hit a million and pull out $60K but it grows 100K you will pay a lot of tax. 
I started with about $400K draw out about $50K and have 580K left. I wait for a market crash and convert shares when they are low, still can't tame it. I may need to bit the bullet and pay IRMAA once and a high tax year to tame the tIRA.

[cronewitch]

Nov 12, 2024 4:47:18 GMT -5 tallguy said:

I have no need or desire for a steady income, so would just take it as needed.  If you feel a need to take your entire RMD up front, either to make sure you don't forget later or to just get it over with and out of the way, fine.  Put the money in your savings or taxable account until you either do or plan all of your own spending.  Later in the year you can figure out your tax liability and decide the most efficient way to take other money out, and where to take it from.  Then do your giveaways.  Unless you consider giving money away to be the most important thing you do, it would be better to do from the left over money at the end rather than doing it earlier which might screw you up later.

So much depends on each person's situation.  How much they have, how much is in each type of account, how much they need, whether they wish to leave money to heirs, etc.  My needs and desires will likely be much different from yours, but my Roth money is the most important money I have.  I would never spend Roth money just because it is there.  That is for when I want more money but absolutely do not want another dollar of taxable income.

What I will probably do when the time comes is split my RMD and use the second part to withhold my tax liability for the year.  Since money withheld is always considered timely, it will eliminate the need to pay quarterly taxes.  

I take a withdrawal in December to pay the entire year of taxes. I take the entire RMD and conversion early to reduce the account then use the ROTH that grew larger to pay taxes. I get it all done the first week of the year so I am done until December. I give my niece and nephew each $15K in January to put in ROTH and spousal ROTH or taxable accounts so less to inherit. I use my RMD and December dividends to fund the gifts.

[minnesotapaintlady]

Nov 14, 2024 1:10:47 GMT -5 cronewitch said:

Nov 12, 2024 21:52:47 GMT -5 bookkeeper said:

The last I estimated DH'S estimated RMD at age 72, it will equal what we are drawing currently, adding more $$ for inflation.  401k has no mandatory RMD like the IRA that I am aware of.

I heard there may be some political people that change the rules from time to time .  All we can do is negotiate carefully what the law of the land requires. And then try to do the best we can.

Watch out for the RMD to grow like crazy, my account grows faster than I can remove money. 401K will be taxed like tIRA when he rolls it over or retires.
If you have a half million in tIRA and draw out a RMD of about 30K but it grows $50K you will have a bigger RMD every year. If you wait for it to hit a million and pull out $60K but it grows 100K you will pay a lot of tax. 
I started with about $400K draw out about $50K and have 580K left. I wait for a market crash and convert shares when they are low, still can't tame it. I may need to bit the bullet and pay IRMAA once and a high tax year to tame the tIRA.

This is my attitude.  I have been managing AGI for the past 20 years and keeping myself artificially poor to maximize retirement savings and help with college financial aid, but I do not want to live like this forever.  If I'm sitting with millions in my 70's I'm going to enjoy it IRMAA or not.

[seriousthistime]

I already have to pay an extra few levels of IRMAA and am trying very hard not to reach another threshold.  I went back to work temporarily this year and my 2024 income got a nice boost.  I was asked to stay on for another few months but declined, IRMAA being just one of the reasons. 

But yes, if you are going to bite the bullet, do it all in one year and keep an eye on your income tax bracket.  You don't want to take so much that you push yourself into a higher bracket.

[Rukh O'Rorke]

Nov 14, 2024 0:58:37 GMT -5 cronewitch said:

Nov 12, 2024 9:06:53 GMT -5 minnesotapaintlady said:

Do you feel like you need the encouragement to spend or do you not care? 

For me, not far below the fear of running out of money is the fear of dying with a huge pile of it. It means I turned down too many wants or wasted years working when I didn't have to.  I'm way better about spending income than savings, so setting up a monthly stream will be important for me...otherwise I'll live like a miser until I'm dead and my kids will cash in. 

I need to fell free to spend, not feel broke, I like to keep about 5K in two checking accounts one is my debit card account that has enough for groceries. I spend about $500 a quarter on food with the debit card, my other account is for bills and my bills run about $2K a month, social security comes in at 3.3K so don't usually need to refill the account. New car and house insurance came to over $2K when I only had $1K in checking due on social security day. I put in an extra 1.7K and got it paid.
I bought myself new pans and new little tiny crock pots this week. I seldom buy anything. I don't need to spend more than I want but don't like thinking not to buy something because of money. My tIRA has too much money I want it less than $500 but it keeps growing faster than I can remove the excess, I do my RMD and convert some to ROTH but try not to trigger IRMAA. I hope to have 1 million left for old age so can spend as much as I want. I have almost 2 million now so give away $30K in January so it can grow in their accounts instead. My last million is for assisted living or a nursing home between about a 10% return and 40K in social security I can nearly pay cash without dipping into the money

My advise is to establish a mandatory crone spoiling account. Put 25k into it each January when you do your other gifting, and your goal is spend it all on yourself on splurges during the year. Massages, vacay, special treats of any kind. Nothing from the regular budget.