Withdrawals from retirement acounts: how often?

[MillCreek]

I am starting to read up on the optimum timing and method of withdrawing from a 401(k) or IRA.  I see that some financial advisors recommend making a single annual withdrawal to last you all year, while others recommend a monthly, quarterly or biannual withdrawal.  Does anyone have any knowledge or opinion on this?  I would think a quarterly withdrawal would be a good compromise between transferring/selling assets to get cash for living expenses and leaving assets in the account to keep earning a return.

[zahc]

I don't think it matters.

Quarterly sounds reasonable.

[Fly320s]

AFAIK, there is no IRS fee or tax for the withdrawal act.  There are only tax implications for the amount of money withdrawn.

Your bank may have a transaction fee, though.

[K Frame]

By the time you start withdrawing your money you should have moved most of it over to more secure funds that are less affected by the ups and downs of the general markets -- bonds, cash funds, etc. -- so that's really a null.

Realistically, there's simply no one answer fits all situations.

Some people are disciplined enough to make one large withdrawal and make it last through the year, while others are better served by making "paycheck" style withdrawals so that income matches monthly bills.

If you have an annual pension on top of other retirement savings you already have that paycheck-type income so you have even greater flexibility in your planning.


This is one point in your life, however, where consulting a financial advisor may well be money extremely well spent, and you should likely do so before you start withdrawing money from your retirement funds. 

[MillCreek]

^^^Currently, everything in my IRA is in diversified funds: VBIAX, TRRBX and VWINX.  Another thing I ponder as I get closer to retirement is if I should move everything into VBIAX, with the classic 60/40 allocation, or TRRBX, currently at about 57/40, that takes a retirement glide path and moves more into bonds as we get further out from 2020.   As with most financial matters, I can find arguments on moving everything into one fund or keeping a small number of funds.  It would make withdrawals easier if I had just one fund.

[Ben]

I mostly concur with Mike.

I don't technically withdrawal my non-pension retirement money at this point. What I do is send quarterly dividends and capitol gains to my checking account. When I get to a point where I withdraw funds, it will be from the conservative portions of my TSP and taxable Vanguard accounts.

Rather than some set time, my withdrawals will be based on anticipated need. For instance, if I need a new car next year, I would now start looking at pulling some money from the conservative funds, while at the same time, given the current stock market, look at moving profits from the stocks to the conservative funds.

If your 401K is your only retirement source, quarterly withdrawals are as good a choice as any, IMO. If you're more willing to watch the markets, then you might do some "one off" withdrawals when the market is booming - again, using the current couple of years as an example. Or if the market crashes by 50%, that might be a good year to tighten your belt and spend less until the market begins to rebound.

A place to get some real world examples might be the early retirement forums:

https://www.early-retirement.org/forums/

I'm only a lurker there, but I have picked up some really good ideas in the "FIRE and Money" subforum.

Also, if you use their calculator:

https://www.firecalc.com/

Depending on how much money you anticipate needing annually, you might be at a point where you just pull money out whenever you feel like it as long as it's within a pre-defined max, since in most cases your money is only continuing to grow

[MillCreek]

^^^I will have to look at the early retirement forums.  I do much of my research on Bogleheads, and a lot of people there argue against the one annual withdrawal, on the basis of not being able to earn a return on that one big chunk of money for the rest of the year.  A lot of them also argue for moving everything to one fund upon retirement to make withdrawals easier, especially if you die and your spouse/partner has to take over portfolio management.  I know my wife is not going to be moving money hither and yon and carefully pondering whether to make the quarterly withdrawal out of VBIAX, TRRBX or VWINX.

[K Frame]

One more thing to consider... if you take monthly or quarterly withdrawals from your funds, it can act as a sort of reverse dollar cost averaging, helping to smooth out fluctuations in fund values over time. You don't get that with a once-yearly withdrawal. If the market has been trending down, then starts to move up after you make your yearly withdrawal you don't get the rebound effect on the money you would have pulled out in subsequent months/quarters. Granted, there's not going to be a huge difference because the funds you should be in at retirement should be pretty conservative, but I think it's still a decent strategy.

[MillCreek]

^^^I agree completely with this point.

[Sawdust]

Keep in mind that when you withdraw from the 401k, 20% will be withheld for federal taxes.

To avoid that, either roll the 401k to an IRA, or roll any withdrawals directly to an IRA, then withdraw the funds.

[MillCreek]

I rolled all my old employment 403(b)s to an IRA.  I have a 403(b) at my current job, and I will be rolling that over to the IRA when I retire from that job.

[K Frame]

Keep in mind that when you withdraw from the 401k, 20% will be withheld for federal taxes.

To avoid that, either roll the 401k to an IRA, or roll any withdrawals directly to an IRA, then withdraw the funds.

Yes and no.

If you withdraw from a 401k BEFORE you reach statutory distribution age (51 1/2), then 20% will be withheld as taxes and there will likely be a 10% early withdrawal penalty on top of that.

However, if you start taking withdrawals AFTER 59 1/2, that money is treated as regular income and taxes won't be automatically withheld. You may be able to set up a tax withholding structure with your financial institution, but figure you're going to have to pay taxes on your own, and that might mean making quarterly estimated payments to the IRS to avoid year-end penalties.

https://www.nerdwallet.com/article/taxes/401k-taxes

[JTHunter]

I rolled all my old employment 403(b)s to an IRA.  I have a 403(b) at my current job, and I will be rolling that over to the IRA when I retire from that job.

Is that a ROTH or a "traditional" IRA?  If you are planning on putting it in a ROTH, you MAY have to pay the income taxes at the current rate and not what the tax rates might be later.  As things stand now, only the growth of the assets are taxed as the basis was already taxed income.  Also, you are not required to withdraw funds at age 71.5 (72 ?) as you do in a "traditional" IRA.  IIRC, a traditional's funds are taxed as "income" at whatever your tax rate is then, while the ROTH's are taxed as capital gains rather than income.
If this isn't correct, please correct me.

[MillCreek]

^^^So my traditional IRA and 403(b) are with pre-tax dollars.  I looked into Roth conversion and just about fell over backwards on what I would have to pay if I did it today and our joint income has been too high to contribute to a Roth IRA.  I am laying the groundwork for a post-retirement conversion by putting everything into an IRA except for my current 403(b).  I will have to ponder doing the backdoor conversion at the time of retirement, but since my tax bracket will be lower upon retirement, a Roth conversion may not pencil out in view of the conversion taxes for a large IRA balance.

[Northwoods]

Roth is tax FREE.  You put money in after paying income tax on it, then if you obey the rules the withdrawals incur zero taxes.  Hence why the contribution limits and income restrictions on use are so low.

Non-Roth qualified accounts (traditional IRA, 401k, etc) you put money in pre-tax, and upon withdrawal owe regular income taxes on the full amount of the withdrawal.  No difference between basis and gains.

[Northwoods]

To answer the OP, I think it comes down more to your ability to stick to a budget for a longer time period.  If you can keep your spending to the plan then one big annual withdrawal is fine.  If you tend to have difficulty sticking to your plan, monthly or even bi-weekly withdrawals might be necessary.  Knowing you I’m guessing that larger, less frequent withdrawals will be handled well, so it’s probably more a matter of your personal preference. 

If it’s me I’m probably going to be watching the market enough to want to accelerate or delay quarterly withdrawals to avoid seemingly temporary dips or take advantage of short term spikes.  I’d also be pulling money from sources based on conditions.  Stocks have been going bananas for a while?  Pull from high risk funds meant to be allowed to accumulate higher returns over 10+ years.  In a bit of a dip/recession?  Pull from the lowest risk funds/cash.  In a “normal” market?  Pull from the lower risk funds that are nominally meant to be pulled from, and refill lowest risk funds/cash accounts from there too.

[charby]

Is that a ROTH or a "traditional" IRA?  If you are planning on putting it in a ROTH, you MAY have to pay the income taxes at the current rate and not what the tax rates might be later.  As things stand now, only the growth of the assets are taxed as the basis was already taxed income.  Also, you are not required to withdraw funds at age 71.5 (72 ?) as you do in a "traditional" IRA.  IIRC, a traditional's funds are taxed as "income" at whatever your tax rate is then, while the ROTH's are taxed as capital gains rather than income.
If this isn't correct, please correct me.

403b is like a 401k but for governmental and non/not for profit employees. Basically the difference is lower fees with the 403b.