The Best Way to Withdraw Money When You Are Ready to Retire
You may be several years away from retirement. But when the time comes, you will want to withdraw your money strategically. Taxes and time are important, and Forbes explains the best withdrawal process.
Of course, how you withdraw your money will depend on a number of individual factors, but Forbes contributor Larry Light says pension funds are usually withdrawn in the following order:
- If you are over 70½ years old, take any required minimum allocations (RMDs) from your traditional IRA or 401 (k) s. (Roth IRAs do not require a withdrawal until the owner dies.) Calculate your RMD using your age, the year you turned 70.5, and the value of your account.
- Spend funds from any investment portfolio that is not part of a qualified retirement plan or tax deferred annuity. Clicking on these accounts for the first time will lower your total tax liability than if you were receiving funds from a retirement or annuity account. Note: Complete this entire step first if you are under 70.5 years of age.
- Start withdrawing from tax-deferred accounts such as variable or fixed annuities, or retirement plans such as a traditional IRA or 401 (k), where your earnings are taxed as regular income.
- Finally, withdraw from tax-free accounts such as Roth IRAs and Roth 401 (k) s. You donated after tax dollars to the Rot, so you don’t owe the IRS a cent anymore.
Light notes that while this strategy is a good start, there are a number of other factors you should consider as well: what your expenses will look like, your overall tax liability, how much you expect your income to fluctuate, and more.