Mrs. Petrus and I just retired. She has about 3x the amount I have in her 401K. Our financial advisors are suggesting we both take out the same % as monthly withdrawals. She is also 4 years older than I am. I am inclined to have a little more taken from her IRA, and a bit less from mine, because she will reach RMD required withdrawal sooner than I will, so does it make sense to whittle down her IRA total a bit more than mine, or is this a “non issue”?
Not enough info.
Is the percentage you are taking more or less than what the RMD amount will be? How much more or less?
Are you invested the exact same way? If not, then the asset allocation of the accounts might be a factor during times of volatility. Do you have the same benes?
How was the percentage determined? Is it need based or something else?
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Mrs. Petrus and I just retired. She has about 3x the amount I have in her 401K. Our financial advisors are suggesting we both take out the same % as monthly withdrawals. She is also 4 years older than I am. I am inclined to have a little more taken from her IRA, and a bit less from mine, because she will reach RMD required withdrawal sooner than I will, so does it make sense to whittle down her IRA total a bit more than mine, or is this a “non issue”?
Seems like since you’re questioning your advisor’s advice, seems like you should probably be asking your advisor this question. That said, there’s a lot more information that’s needed here to even try to give you advice:
- What percentage is your advisor suggesting?
- Will that percentage meet your income needs?
- Is it in line with what the RMDs will be?
- How long until you reach an age that RMDs will be required?
- Do you have other sources of income?
- Has your advisor suggested you do conversions to Roth accounts in addition to withdrawing from your traditional accounts, especially before the tax rates are due to increase for 2026?
It may or may not be a ‘non-issue’, depending on what your respective RMDs will be, your other income and your ages.
AJ
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The IRS tables assume you will live to age 95 or so. At age 72, your RMD payment will be about 1/23rd of the account balance or abt 4%, rising annually.
What will the RMD do to your income taxes? As you have already used your deductions you will pay your highest incremental rate on the RMD.
If the numbers are large, its better to work down the balance before age 72 if you can. Deferring Social Security or pension and living off of your IRA or 401ks is one way. Roth conversions in low tax years is another. Or charitable donations can be used.
No easy answers but figure out what works best with your numbers.
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If neither of you are at an age for Required Minimum Distributions and you can live off of other sources I would leave both of your IRAs alone.
But that’s just me.
Regards,
ImAGolfer (retired '03)
If neither of you are at an age for Required Minimum Distributions and you can live off of other sources I would leave both of your IRAs alone.
That type of thinking is what can result in taxpayers experiencing a significant tax shock upon being required to take RMDs, especially if those ‘other sources’ of income will continue after starting RMDs. It can be even worse if the taxpayers started out as MFJ, but one dies several years ahead of the other. Just sayin’
AJ
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Mrs. Petrus and I just retired. She has about 3x the amount I have in her 401K. Our financial advisors are suggesting we both take out the same % as monthly withdrawals. She is also 4 years older than I am. I am inclined to have a little more taken from her IRA, and a bit less from mine, because she will reach RMD required withdrawal sooner than I will, so does it make sense to whittle down her IRA total a bit more than mine, or is this a “non issue”?
The above is confusing. In the second sentence, you claim that the funds are in a 401(k). In the fifth sentence, you claim that the funds are in an IRA. If in a 401(k) and your employer(s) matched your contributions, a portion of your withdrawals will be taxable income. After taxes are paid on the employer(s) match, will the suggested percentage satisfy your current living expenses?
If in a 401(k) and your employer(s) matched your contributions, a portion of your withdrawals will be taxable income.
Actually, since Roth 401(k)s have only been available for about 15 years, and even then, many employers didn’t offer them until 5 - 7 years ago, I would say that it’s likely for many recent retirees, it’s likely a majority of the withdrawal, if not entire withdrawal, will be taxable, not just the portion attributable to employer matches/contributions.
AJ
Our financial advisors are suggesting we both take out the same % as monthly withdrawals.
I am not an expert, but I have heard that financial advisors suggest this in order to protect the individuals in case of future divorce and to protect the individual estates for their beneficiaries.
The advisors are protecting themselves by recommending the accounts be drawn down at the same rate.
I am inclined to have a little more taken from her IRA, and a bit less from mine, because she will reach RMD required withdrawal sooner than I will, so does it make sense to whittle down her IRA total a bit more than mine, or is this a “non issue”?
What does Mrs. Petrus think ? What did the marriage counselor say ?
That type of thinking is what can result in taxpayers experiencing a significant tax shock upon being required to take RMDs, especially if those ‘other sources’ of income will continue after starting RMDs. It can be even worse if the taxpayers started out as MFJ, but one dies several years ahead of the other. Just sayin’
Thank you for posting this. People do listen to you even if posters here seem to think it won’t happen to them 
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This is inherently a complex question, but a lot depends on how long you have after retirement and before RMDs begin. I’m about a year away from retirement (at 71), but my current taxable income is my highest ever, so if I withdraw traditional IRA holdings now they’ll be taxed at my highest-ever rate. Then I get a year in which withdrawals will push the rate up again, but aren’t required, after which they will be required.
Withdrawing in the gap year won’t reduce the future RMD by much unless I withdraw an inordinate amount. But if the time between retirement and RMDs is longer, it might help more.
This is inherently a complex question, but a lot depends on how long you have after retirement and before RMDs begin. I’m about a year away from retirement (at 71), but my current taxable income is my highest ever, so if I withdraw traditional IRA holdings now they’ll be taxed at my highest-ever rate. Then I get a year in which withdrawals will push the rate up again, but aren’t required, after which they will be required.
At 71, you are eligible to make QCDs from your IRA. So that would be a non-taxed withdrawal.
AJ
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At 71, you are eligible to make QCDs from your IRA. So that would be a non-taxed withdrawal.
That’s certainly a possibility. In an average year, the amount that I donate to all charities combined isn’t enough to make much difference in the following year’s RMD, but some of the organizations would be open to various arrangements (I’m a nonprofit administrator and have experience with the sorts of things I have in mind).
A couple of decades ago I fulfilled a large pledge by donating appreciated securities. They were held at a full-service brokerage and the broker, with whom I had a relationship of many years, was adamantly opposed. Of course she didn’t want me to withdraw funds from the account, even if I needed them – which was possible, too, because I was a full-time student then. I later moved the account to a discount brokerage.
It would have made sense, in the period that I was in school (at age 45 or so), to convert the traditional IRA to Roth while my income was lower, except that I didn’t have sufficient income to cover the taxes.
I’m sorry, these are now all Rollover IRA since we have retired.
In principle, yes- the older spouse’s IRA should be drawn down first, especially so if that account is larger than the younger spouse’s.
The answer might be different if you retired at 55/59 & your IRA is full of growth stocks & hers has bonds vs retiring at 66/70 with a much different AA.
Are both IRAs invested the same way such that growth will be similar?
How old are you?
Have you tried to calculate her RMD at 72 vs yours? https://www.schwab.com/ira/understand-iras/ira-calculators/r…
Do you have identical beneficiaries?
Are Roth conversions a possibility?
Discussed here -
https://www.bogleheads.org/forum/viewtopic.php?t=275973
https://www.bogleheads.org/forum/viewtopic.php?t=343499
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In principle, yes- the older spouse’s IRA should be drawn down first, especially so if that account is larger than the younger spouse’s.
Why?
The total withdrawal is joint income, so the income tax is the same no matter which account is drawn from.
(From the bogleheads thread) Apparently it is presumed that the older spouse has the larger IRA balance, thus reducing that IRA will reduce the RMD. But that only occurs in the period when one is 72 and the other isn’t. But that’s only a few years, as eventually both will subject to RMD.
And, of course, that only matters if the withdrawals are only forced to be the amount they are by RMD.
I am 62, she is 66. Our IRA’s are fairly invested the same. We are married, beneficiaries/trust is all one. We just stopped working, so as of 2022 our overall income will now be much lower if we wanted to consider any Roth Conversions.
We are married, beneficiaries/trust is all one.
It’s not clear what you meant by “beneficiaries/trust is all one.” If it means that you are leaving your IRAs to a trust, I hope that you understand the issues with that. From https://www.irahelp.com/slottreport/should-you-leave-your-ir….
There are some strong reasons not to name a trust as an IRA beneficiary. The main reason not to name a trust is simplicity. By not naming a trust you can avoid restrictions on beneficiaries and trust complications. Another reason not to name a trust is to avoid high trust income tax rates.
Another downside to naming a trust as an IRA beneficiary is the loss of a spouse beneficiary’s ability to do a spousal rollover. This is an option available to a spouse named outright as the IRA beneficiary but not to one who inherits through a trust. There have been many private letter rulings (PLRs) over the years where a trust was named as the beneficiary and spouses have gone to the IRS to request the ability to do a spousal rollover. While the IRS has generally allowed such requests when the spouse has complete control over the trust and its distributions, relief comes with a big price tag.
AJ
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petrus36:
<<I am 62, she is 66. Our IRA’s are fairly invested the same. We are married, beneficiaries/trust is all one. We just stopped working, so as of 2022 our overall income will now be much lower if we wanted to consider any Roth Conversions.>>
As you likely know, the next 4 years present a golden opportunity for Roth conversions due to the current low rates under the TCJA tax code, compared to the 2017 tax rates that return in 2026 (adjusted for inflation).
You haven’t mentioned your current tax rate or likely future tax rates, but Roth conversions would go a long way to mitigating the risk that your RMDs would cause you to jump into a higher tax rate/IRMAA/NIIT when combined with Social Security income and any other income, such as dividends or pension income in your 70s & beyond.
You need to run the numbers to see what your likely income looks like when DW turns 72 & also 4 years later when your RMDs start, to see what level of Roth conversions makes sense.
Focus on converting DW’s TIRA, since she is facing RMDs first & has a much larger IRA.
In addition to reducing RMDs, increasing Roth levels via conversions helps mitigate the widow’s tax trap, when one of you passes & begins filing Single vice MFJ, but RMDs continue at the same pace (assuming you are each other’s TIRA beneficiary).
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